09th February 2021

Snapshot of the Rental Market for Landlords/Investors

Demand and Supply of Rental Stock.

Across the UK, demand for rental property is still rising, with total demand from
renters last month some 21% higher than January 2020. At the same
time, the supply of homes to let is more constrained, falling by 11% over the
same period, and putting upward pressure on rents in many areas.

During the first lockdown, there was a sharp rise in supply of rental properties
prompted by the sudden change in landscape for short-term lets amid falling
tourism and commuting. This stock transferred into the long-term rental
market, creating a bulge in stock volumes, especially in central towns and cities.

The rise of working from home which has gained traction throughout 2020, also
means that a cohort of workers who typically rent in the middle of town for
work have located elsewhere on a more permanent basis, meaning more central stock
coming back to the market rather than rolling over into a new rental contract.

Changing working patterns are also playing a part here, and the data indicates
some office-based renters are ‘looking through’ the current lockdown to the
rest of this year and beyond when flexible working is likely be entrenched. Just as
in the sales market, the data points to renters looking for homes with more
space, indoor and outdoor, stock which is more likely to be found in the wider
commuter zones.

The outlook for the rental market in 2021, especially in central towns and cities, will depend on
how quickly the COVID-19 vaccine is rolled out, and how quickly it can start to
have an effect and kick-start a return to more mobility across the country, and
internationally.

As this happens, ‘business as usual’ will start to resume centrally as
business activity starts to rise, from the reopening of retail and offices to events
spaces, leisure and entertainment facilities. This will likely result in a tick-up in
demand in town and city locations, as well as a shift from long-term lets back to short-term
lets in some cases, helping to absorb some rental stock currently standing empty.

Flexible working is likely to continue, meaning there may be a permanent shift
in priorities for some renters in terms of location and property type. The ‘search
for space’ will likely continue, supporting the rental market for family houses in the suburbs.

At a more local level, rents will be underpinned by continued demand in the
sector as lack of mortgage availability for first-time buyers mean some stay in
the sector for longer. In addition, the supply of new homes into the sector from
buy-to-let landlords will remain constrained, meaning overall UK supply in this
sector will remain limited which will act as a continued support to rental price levels.