Increased Tenant Demand
The UK rental property market is seeing a resurgence in tenant demand after a two month pause. But the supply of rental property is lagging, leaving a gap in the market for investment.
Last week, on Wednesday 27th May, property portal Rightmove recorded its busiest day on record with more than six million visitors, an increase of 18% on the same day last year. The data also shows that more than a quarter of people who previously had no plans to move before lockdown are now actively looking.
According to Rightmove the rental markets recovery has been more significant than sales, this said the demand for rental property certainly demonstrates a revival of interest in the sale market.
The Move to Change
The statistics gathered by Rightmove show that the rental sector is almost back to its pre-coronavirus levels in terms of tenants seeking homes with the portal registering a huge 22% increase in demand for lettings compared to the same period in 2019.
There are a number of factors contributing to this increase. One is simply that the housing market has re-opened, allowing people freedom to view properties again and move house. The fact that the private rented sector has less logistical issues and paperwork than the sales sector means that viewings and moves can happen more quickly.
However, there are other possible reasons which are influencing people’s decisions such as the move from traditional office based workforce to homeworking.
Companies big and small are now embracing flexible working patterns and increased homeworking offerings which have recently been forced upon us during lockdown but which, thanks to the tech industry, has actually benefited businesses and workforce lives. The need to live in the inner cities is less of a requirement with many people looking to move more towards the suburbs and rural locations for a better, less stressful, quality of life.
London experienced the worst of the coronavirus outbreak in the UK, certainly in the initial weeks when the virus took a grip. Whilst many who owned second homes in the country took flight before lockdown was imposed, those who remained in the capital for the duration, especially those in apartments and flats, will have yearned for some outside space to call their own. A luxury in scarce supply in many of the UK’s major cities.
The appeal of moving to a house in a less populated area, where there is no need to rely on public transport, with outdoor space to enjoy and easy access to the countryside appears to be the main requirements of those actively looking to move right now.
Of course lockdown has caused many of us to re-evaluate our personal circumstances, work life balance, changes in working conditions, cost of living or even relationship breakdown can all be contributing factors to this insurgence of rental property demand.
2020 certainly started with quite a bounce as the months of uncertainty over the election and Brexit began to fade. But after the arrival of such an unprecedented and sobering event, which has and will continue to impact the way we all live and work in the future, it is inevitable we will see a shift of some description and the emergence of new trends across the different sectors of the residential market.
A Gap in the Market
Currently the supply of rental homes is lagging behind demand. Data gathered by Rightmove suggests that the number of new rental listings is currently 4% lower than this time last year. In the week of 6th April, it fell massively to 64% below 2019’s levels. Those working in the private rented sector have noted the increase in demand and limited supply and have taken to using social media to offer landlords, and owners of second homes, incentives to rent out their properties as the waiting lists for potential tenants increases.
The lack of available rental properties could also see increases in rental prices and more scope for landlords to be more selective with their tenants.
The past 20 years has seen a huge growth in the private rented sector with data suggesting that by 2039 55% of the housing market will be rented accommodation. This increase and current demand is surely paving a new way for property investors to profit from Generation Rent.
As people’s attitudes towards renting have changed, coupled with affordability issues, it has become more of a lifestyle choice for thousands.
Where to Invest?
For property investors currently looking at the UK housing market, the current spike in rental demand is something to consider. When demand is high, void periods tend to be lower.
Whilst the south-west leads the way, where demand for lettings is now 34% higher than it was at the end of May 2019 it is the northern regions that have seen the highest year on year increase in demand for sales with a strong rental market. The North of England enables investors to buy property with much less financial risk. Properties on average are cheaper and by investing in more than one, it helps you spread the risk of your investment, which will have less of an impact on your cash flow.
As people look to re-evaluate their lives coming out of lockdown and of course consider the risk of a potential second wave to hit the UK the North East and Yorkshire regions have and will become a hotspot as distance working becomes the norm and people crave space and quality of life. Certainly those currently forced to house share in the larger cities due to cost of rent are making the transition.
The North East is most definitely an area of interest with its sprawling countryside, coastal areas, 4 major cities within easy commute, 4 universities and access to Newcastle International Airport. In addition the huge investments to the North East and surrounding area infrastructure announced by the Transport Secretary Grant Schapps in January and reinforced on the 14h May will have great impact on the local economy as more businesses look to relocate to the area. In 2019 Sunderland was named the third best city in the UK to start a business with its high start-up survival rate and low costs proving particularly attractive for new companies. In fact, the north as a whole has increasingly enticed entrepreneurs, and many have avoided London – the UK’s traditional business hub- entirely.
The North East has become particularly popular, seeing a 14% rise in its business population in 2019 the year of Brexit, whilst London grew by just 3%. The North East is also home to Tech giant Sage which is the UK’s second largest technology company, the worlds’ third-largest supplier of enterprise resource planning software (behind Oracle and SAP), the largest supplier to small business, and has 6.1 million customers worldwide.
As the appeal of the North East spikes interest in businesses and renters, so should it appeal to the discerning property investor who will most certainly capitalise on the generation of rent as we move into a new post Covid-19 era.
Head of Property Investment, Homes or Houses