Savills, in its latest research, forecasts a strong rental growth in the UK for the current calendar year, projecting a 9.5% increase. Although this rate is lower than the 11.2% growth witnessed in 2022, it still surpasses any other year’s growth, as indicated by Zoopla’s rental index.
The research suggests that the persistent imbalance between supply and demand will continue to drive robust rental growth into 2024, with an anticipated further increase of 6.0%. However, Savills anticipates that an ‘affordability ceiling’ will limit growth beyond 2024, moderating increases through the period of 2025 to 2028.
Emily Williams, director in the Savills residential research team, said: “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.”
Williams further explains the resultant market dynamics: “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.”
Discussing the future of the rental supply, Williams adds: “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.”
Jacqui Daly, director of Savills research and consultancy, addresses the potential impact of the Build to Rent sector: “The private rented sector appeals to institutional operators because it offers a secure long term income stream which is likely to rise with inflation and also ticks the social value box by providing a much-needed source of new housing.
“With the pool of renters expected to widen, there are opportunities for investors to provide both urban flats and suburban family housing to rent in the multifamily and single family markets respectively.”
Daly also notes the challenges faced by this sector: “However, the degree to which the Build to Rent sector can grow in influence will depend on how easily schemes can get funding in a challenging debt market and get planning consent in an arguably even more challenging planning environment.”
