There’s been a slight rise in rental values in the UK’s prime markets, with London itself witnessing a modest 0.3% increase over the first quarter of 2024. This signals a gentle return to the seasonal rhythms of the property market after a long period of bullish growth. Over the past year, the pace of this growth has decelerated for the sixth consecutive quarter, landing at a rate of 3.2% in Q1. Yet, it’s crucial to note that rents are still standing tall, a whopping 18% higher than the pre-pandemic era.
Looking beyond the capital, the prime regions across the UK saw a more noticeable quarter-on-quarter growth of 0.9%, even as the yearly growth rate cooled to 4.0%. These areas maintain a robust stance, with rents towering 24% above their March 2020 levels.
What’s Behind the Change?
Jessica Tomlinson, a research analyst from the property giant Savills, explains the situation, “Rental growth picked up slightly on the quarter, however, affordability pressures and increased stock mean rental growth has settled at a much lower level compared with the last three years. But rents remain at a record high, and the prospect of falling mortgage rates is expected to ease some of the financial burden on landlords. Rental growth continues to exceed capital value growth, meaning that yields have improved across the sector, which will support continued investment. In London, houses are now outperforming flats, signalling that the flats market maybe hitting an affordability ceiling, while tenants searching for houses typically have slightly more leeway when it comes to budget. Also, a stronger sales market has constrained the number of houses to rent across the capital, particularly across west and north west London.”
Expectation Gap Widens Between Tenants and Landlords
As the market finds its footing in a steadier growth rhythm, a rift has emerged between what landlords expect and what tenants are willing to pay. While 60% of Savills’ letting agents observed a downtrend in tenants’ rental price expectations over the past quarter, only a mere 25% sensed a similar sentiment among landlords. In fact, half of the agents reported a continued uptick in landlords’ rental expectations during the same period.
This disparity underscores a shifting market landscape where tenants, armed with more options, often propose offers below the asking price on several properties. Bridging this expectation gap will become increasingly crucial as the consensus leans towards a further increase in available properties throughout the year.
The Commuting Factor Boosts Regional Markets
The allure of convenient commuting has catapulted regional towns and cities, along with London’s commuter belt locations, into the spotlight. Chester, Birmingham, Cobham, and Weybridge emerged as the top performers this quarter, echoing tenants’ prioritisation of easy access to their workplaces. This trend underscores a broader pattern where urban areas consistently outshine their rural counterparts in rental growth. Over the past year, regional towns and cities saw an impressive 8.2% growth, starkly contrasting with the more modest 2.3% in their surrounding areas. For landlords in these bustling hubs, the news is good: rental growth has decisively outpaced capital value growth over a four-year span, signaling a lucrative uplift in yields.