The latest quarter has seen a deceleration in rental growth for prime regional markets in the UK, according to the newest data from Savills’ prime lettings index for Q3 2023.
This change comes after three years of strong growth. Prime regional rental prices grew by a modest 0.6% in Q3, a sharp drop from the 2.6% growth seen in Q2 of this year.
Despite the recent slowdown, annual rental values in these areas are still 4.7% higher than this time last year.
In contrast, prime London markets have sustained their growth, albeit at a slower pace, with a 1.7% increase this quarter, down from 3.0% in Q3 2022. The annual growth rate in the capital now stands at 5.4%, marking the lowest in two years.
“More stock coming to the market, against steadying demand, is causing the regional rental market to fall back into a seasonal pattern,” said Jessica Tomlinson, research analyst at Savills.
Tomlinson also highlighted the growing gap between landlord and tenant expectations, particularly in the regional markets where a third of tenants now expect to pay up to 5% less for rent, in contrast to just 18% of landlords.
Urban markets like Manchester, Birmingham, and Edinburgh saw the highest quarterly rental growth, outperforming commuter locations, which showed a negative growth of -0.2%. This trend was also mirrored in London where central locations showed stronger growth compared to the pandemic-favoured leafy locales.
“Strong competition from needs-based tenants combined with successive rises to interest rates have kept some would-be first-time buyers in the rental market, pushing up prices of smaller properties,” Tomlinson added. As a result, rental yields for flats in North and East London have surpassed 5% for the first time since March 2014 when Savills records began.
However, the report pointed out that available stock remains a key issue, with tougher financial conditions putting pressure on landlords.
“Viability remains a significant issue for landlords with higher levels of debt. With fewer properties available, landlords will continue to favour affluent tenants and those in more secure employment,” concluded Tomlinson.
