The latest lettings market forecast from Savills says average UK rents to end 2023 at up 9.5 per cent year on year – lower than 2022, but higher than any other year on record.
This will mean that typical rents have risen 26 per cent since March 2020.
And there’s only modest respite next year , when a near record rise is anticipated.
Savills forecasts that the imbalance between supply and demand means UK rents will rise a further 6.0 per cent in 2024 before hitting the ‘affordability ceiling’ in 2025.
A greater supply challenge and stronger economic outlook means that London rents will begin to rise more strongly than the UK average by the end of the forecast period: the South East and South West will see the highest five year growth, as lower yields mean stock constraints will prevail for longer.
Emily Williams, director in the Savills residential research team, comments: “Homes to rent continue to be in significant short supply. The end of a series of national lockdowns sparked increased rental demand in mid-2021 that has consistently outstripped supply ever since. At the same time, the rising cost of debt has impacted the profitability of many mortgaged landlords. This, together with a changed tax and policy environment, is forcing an increasing number to sell their properties.
“As a result, competition for stock is tough, and tenants are having to bid upwards to secure a tenancy, supported – but only in part – by a strong growth in incomes, fuelling rents upwards in the short-to-medium term.
“It’s very difficult to see where an increase in rental supply will come from in the next couple of years. Higher borrowing costs will also keep would-be-buyers in the rental sector for longer, underpinning demand, and while some landlords will be able to transact in cash to avoid the higher cost of debt, this is unlikely to move the dial on supply. Any significant increase in stock in the sector will be delayed until 2026 and beyond, when interest rates have fallen more substantially.”
But any increase in rental stock in London specifically will be further delayed, Savills says.
With rental yields already lower in the capital, it will take a longer time for a significant premium over the risk free rate to emerge.
This supply challenge, in addition to a slightly stronger economic outlook for London over the rest UK, means Savills expects London rental growth to begin to show stronger rental growth again by the end of the five-year forecast period.
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