RENTAL MARKET FORECASTS

We forecast that the rapid pace of growth in the rental market will slow in 2022. But the rate of increase should still be above pre-pandemic levels. This has been supported by tenants willingness to pay for extra space – and by unprecedentedly low stock levels.

We are forecasting that rents will rise by an average of 2.5% in 2022, following an increase of 3.0% this year. Growth will be dictated by what happens to peoples’ incomes.

The regions outside London seem set to move in similar directions, with no significant north-south divide. Rental growth will continue to be buoyed by places outside larger cities as tenants remain working from home when they can, although likely to a lesser extent than homeowners.

Growth is likely to be slower in the capital, particularly in Inner London where rents may not return to pre-pandemic levels until the middle of 2022. Outer London will continue to drive the London market, and while the gap in rents between Inner and Outer London will shrink from where it is today, it is unlikely to return to pre-Covid levels for the foreseeable future.

We are forecasting overall rental growth in London of 0.5% this year, with pickup to 1.0% in 2022.

Despite low returns on cash in the bank, it’s unlikely that landlords will start to buy again in any great numbers. Growing yields may entice a few opportune investors back, particularly into London, but interest rate hikes in 2022 or 2023 could offer landlords other options.

As a result, we think the private rented sector will be smaller in size by 2024 than it is today. By contrast, the build to rent sector is set to grow over the next four years, with 50% more homes in such schemes being marketed this year than in 2020. Nevertheless, this sector remains small, accounting for 1-2% of rental homes available.

When Help to Buy ends, developers looking for ways to replace the scheme may be keen to sell units or whole blocks to investors. Developers may, once again, begin to target off-plan buyers to secure early sales. But off-plan purchases by investors are unlikely to curtail the shrinking of the private rented sector. This means the rental sector is likely to be smaller in 2024 than it is today