The Zoopla Rental Market Report, published this week, mentioned a two-speed rental market, but what does that mean?
We are seeing two trends emerging in the rental market at present.
Across the UK, outside London, rents are growing at +2.2% annually. This rental growth is being supported by a gap between supply and demand.
While tenant demand has risen sharply after lockdown, this is not matched by the level of homes being listed for rent. The competition for rental homes is putting upward pressure on rents.
However, a different trend is emerging in London. In the capital, especially in central and Inner London, the supply of homes being listed to rent has risen strongly, and isn’t currently being matched by demand. There are several reasons for this, largely related to Covid.
Firstly, the gloomier outlook for tourism means that landlords operating short let properties took the opportunity to move into the long let market - thereby boosting supply. This has also happened in Edinburgh to a much larger extent.
The change in working patterns may have also led to increased supply, as those who stayed overnight in London several times a week no longer needed to be in central London. Likewise students or young workers may have chosen to move in with family elsewhere.
This trend is less pronounced in outer London, with demand still oustripping supply in some boroughs, but overall rents in London are down -1.4% on the year.
Which cities are seeing the strongest rental growth?
Bristol, Leeds and Cardiff are all seeing growth of more than 3%, and it is no coincidence that these cities are all showing strong rises in demand. In Cardiff, tenant demand in July was more than twice the average level of demand over the last three years, while supply remains lower than average.
Will this level of rental growth be maintained?
We can see that the demand/supply gap is starting to narrow. More stock is coming to the market, and this trend will likely continue, especially given the tick up in interest from investors in the market given the effective discounts on offer due to the stamp duty holiday.
As the gap narrows, there will be more downward pressure on rents, so we see the level of rental growth outside London declining to +1% by the end of the year.
In London, while the additional stock is absorbed into the market, we see rents - which have already fallen 3% since January - falling by up to 5% in 2020.
*Grainne Gilmore is Head of Research at Zoopla and a contributor to Estate Agent Today