The rental market over the last couple of years could be compared to a pendulum – swinging high with lots of properties available due to effects of initial 2020 lockdowns, to low, with a severe lack of availability coupled with a huge increase in demand.
We have seen landlords make bold decisions on how they manage their property investments, many due to circumstances led by the pandemic, and some wanting to take advantage of the strong sales market. A nationwide rental stock shortage, has meant that applicants searching for a rental property have had to compromise more than ever to find a home, specifically when it comes to the location, so we advise the importance of being open minded to extending area criteria from the outset.
In Surrey, the demand in the corporate and relocation market is especially high. With travel restrictions relaxing, we have seen an influx of international tenants scrambling to find a home that suits their needs, but are struggling to do so.
To put this in context: a relocation agent recently visited our Cobham office with wide perimeters for a family with £4,500pcm - £12,000pcm to spend, and we still struggled to help with their search! Compare this to the market in 2018/19; we would have had a wide selection. Another example is a recent tenant who has agreed to pay over 50% more in rent than the outgoing tenant does, to be confident they would secure their desired property.*
London demonstrates a similar story; with the lack of availability becoming very apparent from the early summer months in 2021, concern only continued to rise through the year with the stock levels showing a 63% decrease by December YoY.*
The positive note was that confidence in the capital returned and people wanted to move back in, however, this increased the need and pressure for property, and so asking prices grew rapidly, with many rents increasing as much as 40% YoY.* For landlords, this was the relief they needed, as the trend of significantly reduced rents at the beginning of the pandemic reversed.
The biggest change in tenant’s decision-making process are the requirements for commuting. Many have reflected on their work/life balance, having spent more time at home than ever before, and so there is more emphasis on a home’s quality, functionality and practicality for a tenant now. The demand for more internal living space along with a private or communal garden, or a minimal distance to a park looks like it is here to stay.
Expectations and advice
We expect prices to stay at increased levels whilst demand remains a major factor, with the latest RPI rate at 7.1% – which is good news for landlords.* It is important we assist landlords in getting the best rental income they can achieve, along with managing expectations of tenants, by showcasing real-time market examples and experiences to back up our advice to both parties. With the concern over lack of stock, often the overriding option for the tenant to stay put and pay the increase is the right one. Advice to landlords/tenants alike is – find the tenant/property you love and plan to be there for some years, thus reducing the moving costs for tenants, and void periods for landlords.
Although the short supply for available rentals looks likely to continue throughout 2022, the pendulum seems, at the outset, to have fallen from the height of its swing.
*John D Wood & Co. internal data 2022.