What is keeping momentum up in the rental market? In short, as in the sales market, some renters are reassessing how and where they live in the wake of months spent in their homes.
Upward pressure on rents is being exerted by higher levels of demand outside London, which many agents will have experienced last month. Our data suggests that demand was 20% higher in January than at the start of last year.
There is a slightly different picture in London, and I will return to that.
Why this reassessment of home among renters? There are several factors at play - some people may want to relocate to live closer to family or friend networks given the events of the last year. Some renters may be motivated by moving close to nature. But an overriding impetus to move may be coming from the changing working patterns that have emerged for office-based workers over the last year.
As we move back to some sort of ‘normal’ amid vaccine roll-outs during the summer, the sea-change that has happened in terms of working from home is unlikely to reverse. Many businesses have already committed to continuing with much more flexible work arrangements, with a balance between home and office working. Suddenly many renters may not be facing a daily commute. This opens up markets further afield from office-hubs.
We can see the impact of these changing dynamics in the data, which show that while there has been some negative pressure on rents in city centres, rents are rising in the surrounding areas - the wider commuter-zones.
Moving further ‘out’ from the city may allow renters a wider choice of properties with more space, both outdoor space and indoor.
Search for space
We can also see the ‘search for space’ when we look at how fast the market is moving. The time taken to rent out a house has fallen by 30% compared to Q4 2019. The time taken to rent out a flat is broadly unchanged on average across the UK, although in some major cities, it is now taking slightly longer.
The search for space may also be driving higher demand levels in some well-connected towns beyond the commuter zones, with some of the highest rental growth in 2020 being seen in towns such as Rochdale (+8.2%), Hastings (+8.0%) and Mansfield (+7.1%).
While the rental market across the UK is currently characterised by demand outsripping supply in many markets, in London, the trend is reversed, with new supply up 30% in January compared to the year before. However, London’s rental market remains highly localised, with the rise in supply exerting the greatest downward pressure on rents towards the centre of the city.
As well as the changing commuting, working and tourism patterns affecting London’s central rental market, the market has also had to absorb stock moving over from the short-let market. The monthly decline in London rents in December was the smallest since the start of the pandemic, suggesting that rents may be starting to find their level.
Looking through the current Covid conditions to a return to some sort of normal - although the timing of this will rely on the roll-out of the vaccine - it is possible that some of this stock may move back into the short-let sector, which will also limit the downward pressure on rents moving forward.
As we consider some movement back to ‘normal’ this year, it’s worth remembering that a return to office-working and the resumption of ‘city-centre life’ - with entertainment venues, restaurants and cultural centres all reopening - means that the dynamics of the rental market in these locations could swing back towards pre-pandemic trends to some extent.
But the post-Covid pendulum will not swing all the way back - changes in working practices engendered by the pandemic are likely here to stay, and this will continue to support wider commuter-zone rental markets throughout the year.
The rental market will of course be affected by broader economic trends throughout 2021, but is also likely to remain characterised by constrained supply, putting a floor under rents, especially if mooted changes to CGT come to pass, which could further impact investment by buy-to-let landlords.
*Gráinne Gilmore is Head of Research at Zoopla