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UK rental market growth reaches 13-year high

Rents forecast to increase by a further 4.5% by close of 2022

The regions showing the highest levels of rental growth are among the most affordable

Record price growth in the UK rental market is reported by Zoopla in its quarterly Rental Market Report.

Zoopla says renters are rushing back to city centres and acute tenant demand over the third quarter of 2021 has pushed UK rental growth to its highest level for 13 years.

It says the UK rental market is being shaped by a continuing imbalance in demand and supply, with demand still outstripping supply, which stands at 43% below the five year average and is causing an upward pressure on rents.

This imbalance has been exacerbated by the long-term structural issues including landlord divestment after the 3% stamp duty levy was introduced in 2016, and immediate demand post-lockdown, which have collectively caused an erosion of available supply.

As of the end of September, the cost of renting is up 4.6% year-on-year on average across the UK. Remove London from the picture and this rises to 6% – a 14-year high.

Zoopla reports that UK monthly rents now amount to 37% of an average income for a single tenant occupant.

The regions showing the highest levels of rental growth are among the most affordable when compared to the UK average, and because of this, there has been more room for rents to increase.

Rental growth is near to, or at, a 10-year high throughout most UK regions - except in London and Scotland.

Rental demand in the central areas of Leeds, Manchester and Edinburgh has at least doubled over Q3 compared to Q1, and in Birmingham demand is up 60% - propelled by the return of students and office workers, and the pull of city life.

After 15 months of consecutive drops, London’s rents are back into positive territory, up +4.7%, in Q3. This reflects annual growth of +1.6% compared to a drop of nearly 10% at the beginning of the year.

As in other main UK cities, market activity increased significantly in Q3, with tenancies agreed in the capital city running 50% over the five-year average, emphasising the bounce-back in the market as offices opened again and city life started once more.

Despite this upward move, given the drops over the last 18 months, average London rents are still 5% below what they were at the beginning of the Covid-19 pandemic.

Rents forecast to increase by a further 4.5% by close of 2022

Looking forward to 2022, the structural undersupply of rental properties throughout the UK is expected to support rental growth into the next year.

Also, the shortage of supply together with the strength of the employment market, will in turn support rental demand and sustain growth in the rental market.

Whilst rental demand may ease off in the near term following seasonal trends, demand levels will stay higher than usual, especially in city centres, where there is plenty of demand.

Gráinne Gilmore, Zoopla’s Head of Research, comments: “The swing back of demand into city centres, including London, has underpinned another rise in rents in Q3, especially as the supply of rental property remains tight.

“Households looking for the flexibility of rental accommodation, especially students and city workers, are back in the market after consecutive lockdowns affected demand levels in major cities.

“Meanwhile, just as in the sales market, there is still a cohort of renters looking for properties offering more space, or a more rural or coastal location.”

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