Podcast - what's happening to the UK rental market?

A Q&A with Gráinne Gilmore from Zoopla

Our latest episode examines the current state of the UK rental market with Gráinne Gilmore, Head of Research at Zoopla, one of the largest property websites in the UK.

Listen to the full episode here or read the full transcript below.

What do you think is happening to rents around the country at the moment?

Our data at Zoopla is one of the broadest bases of data in the industry. And our rental index is showing us that at the moment outside London, rents are growing by 2.6%, but inside London and the whole of London, rents are actually down nearly 10% on the year. We have this two-speed market. Now, as we continue to chat, you'll see that it's a little bit more nuanced than that, but just as a broad brush, we have a kind of rental decline happening in London at the moment and outside London rents generally are going up.

And how would you say that that actually compares to a year ago?

This actually shows us what's happening in the market at the moment over the last 12 months. So if we looked at average rental growth last year across the UK, the average was around 2.4%. And in London, it was 2.4% and outside London, it was 2.4%. So everything was very similar. What we've got at the moment is that average rents across the UK, because of that London downward movement, are down about 1.5%. But as I said, outside London up 2.6%, within London down 10%. So it's a very, localised market at the moment

And has the experience of the pandemic and the lockdowns that we've experienced over the last 12 months changed the rental market at all?

Absolutely. So if we start to unpick those rental trends, you can see the impact that the pandemic has had and why we've had that change over the last 12 months. So just to look at London, specifically in central London, we had, as soon as the pandemic started and the lockdown started, if you think about all the tourism, the international business travel wasn't happening anymore, we had offices shutting down. So there was a lot of rental accommodation that people perhaps decided that they weren't going to take up. There wasn't any tourism coming in for those holiday lets. So you saw a lot of supply come onto the market, especially in central London. Now that rise in supply meant that there was downward pressure on rents in that central London market. What we have seen is that in some outer London boroughs, we're still seeing rental growth.

So this is a tale of central cities, and we've started to see that as well in Leeds, Manchester, Birmingham, in the very center of the city, a bit of negative pressure on rents because more supply has been coming to the market while these offices have all been shut. Meanwhile, in the commuter zones outside those cities, we're seeing strong rental growth - up at 5% growth in some cases. So we've sort of got a doughnut effect going on because of the pandemic because what we're seeing throughout the rest of the UK, especially in some rural markets, is really strong rental growth. So there's definitely demand in these markets but not much supply in many markets. And that is putting upward pressure on rents across the whole of the UK. But it is worth mentioning Louise, we are now at a new stage of the pandemic with a vaccine rollout and offices starting to open up. Certainly, we know that our office is going to really start opening up in earnest come September, so that pendulum might start to swing back. So we could start seeing upward pressure on rents in those city centre locations in the coming months.

We keep hearing about supply and demand at the moment. What does your data show? Do you think there'll be a trend around that moving forward?

The latest data we have on this shows that demand for rental property outside London, up 21% compared to where it was this time last year; supply down 11%. So that gives you some idea of the scale of this imbalance that we're talking about. And that is putting upward pressure on rents. Meanwhile, in London and some of those city centres, we're just not quite seeing that imbalance. I talked about those rental properties that have come back to the market, perhaps office workers who were staying there three nights a week, or, holiday lets, or people who were just travelling in and out of the city centre for various reasons. That rental property has come back to the market. As we see nightlife opening up in restaurants and bars -  I'm speaking to you from Northern Ireland - we’re a few weeks behind you, so there's some anticipation still building here, but as that all starts to open up and people want to get out and about, in the city centres, the rental market will be the first market to respond to this. And so you could start to see that demand picking up in cities.

What do you think that renters are thinking about right now?

Well, several things, depending on their circumstances. For renters who are linked to an area and may be tied to an area because of schooling or because of family, then there may be a reassessment of where or how they're living -  perhaps they might want more space. But for renters who are able to move, we can see that just mirroring what we're seeing in the sales market, where homeowners are doing the same during the pandemic.

The data really suggests that some renters are reassessing where they're living and why they're living there and how they're living. Especially office space workers, as we've mentioned before, they may not have to commute in the same way anymore. Offices are going to open up again, but office workers may not be required to be there five days a week.

Suddenly that opens up the vista of where you might want to rent. If you only have to commute a couple of days a week, or even a couple of days a month, you might want to rent further afield. So renters are maybe looking slightly further afield than they have before. There are rural rental markets that really picked up over 12 months. And it's possibly not just a short-term trend. This could continue.

What we can see from the searches is that renters are interested in space. Balconies are very popular when people are searching for rental property flats or houses with gardens.

It's taking 30% less time to rent out a house than this time last year. Flats are renting out slightly more quickly too, but only 2% faster. So you can see the difference. People looking for more space and obviously houses tend to have that extra bedroom that you might be using as a home office. Let’s not overlook the importance of pets for renters. It's the fifth most popular search term. Landlords considering renting out a property may want to get ahead of that by making sure that renters will know that their property is pet friendly if indeed it is.

That's really great insight. So on the flip side, what do you think that landlords need to know right now?

One of the first things to consider for landlords is what will demand rental accommodation look like as we move through the rest of this year. Our feeling is that rental demand will remain strong. What we saw during the pandemic is perhaps some potential first-time buyers who would have naturally moved out of the rental sector and bought their first home were kept in the rental sector for longer. We saw that there was a real squeeze on mortgage lending for first-time buyers during 2020 but now there are more options for first-time buyers. You could see more first-time buyers leaving the rental sector and buying their first property. But at the same time, we expect to see more people who perhaps were living elsewhere or went back to their families during the lockdown, start to come back into the rental market as everything starts to open up.

So there is sustained demand in the rental sector. Also, landlords will be operating in a sector, where there is constrained supply. We have not seen that level of mortgage lending to landlords pick up to anywhere near the levels it was in 2016 for the additional stamp duty. And some landlords are continuing to take advantage of the stamp duty holiday. So for landlords, there's still an opportunity to do that. They will be starting to provide accommodation in a still constrained market when it comes to supply. And with some of the dynamics, we're seeing in the market, it will suit some landlords portfolios to invest now, to invest in some city markets or perhaps even rural markets where they can see the dynamics work for the return profile that they're looking for.

We're certainly experiencing investors come to the market within the branches. So what's the outlook for the market over the rest of the year?

We think that this reassessment of home that I was talking about earlier has further to run both in the rental market and the sales market. It's not just a lockdown phenomenon. Because of this change in the way people are working for office-based workers, particularly in the way they're working. I mean,  there's just been a sea change since March last year, about how offices and how people who operate in offices think that they're going to be working and how often they need to be there. And this really does open up more areas in the market over the longer term, in terms of rents. We do think that there will be continued upward pressures as we have this supply/demand dynamic, but much will depend as we move through the rest of the year on government support for the wider economy. The housing market is linked to what's going on in the wider economy. And as we start to see, the end of furlough as we move into quarter four. We just have to keep an eye on what impact that has on sentiment and economic performance because that could in turn have an impact on rents.

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