State of the London rental market 2022

London has remained as one of the most resilient, globally connected investments centres despite the pandemic and the current cost of living crisis.  As the Global City UK states, ‘London is one of the world’s few truly global cities, a place that celebrate diversity and incubates innovation’. London’s economy has generated an unrivalled number of jobs since 1991, at nearly 2 million.

A vast property investment location with varied rental businesses catering for young professionals, students, corporate clients and prime central London renters, London will always have many opportunities for landlords.

In line with the rest of the country, this year’s tenant demand in London has been the highest recorded in the last five years. And, it is the high rental demand along with low stock levels and increased renewals that will continues to shape London’s lettings market for a considerable time in the future.

Industry analysts at Cushman & Wakefield find that ‘This chronic shortage in supply is being met with a growing number of renters, up from 3.6 million households in 2010 to 4.4 million in 2021.’ The growing UK population and first-time buyer affordability constraints mean that demand for rental homes will continue to outstrip supply.*

Low stock levels are directly linked to decades of building an inadequately low number of new homes in London and the UK. Paul Cheshire, professor of economic geography at the London School of Economics comments: ‘Before the Second World War, in that decade we built over 60,000 houses a year on what is now the GLA (Greater London Authority) area. The most recent decade we built about 24,000 houses a year.’

The diminishing pandemic restrictions, the restored confidence in the City, the return of global firms to London and the strong recovery of financial markets resulted in high job volumes in the second part of 2022. Consequently, a significant number or renters have returned to Central London. Some statistics claim that the number of prospective tenants has more than tripled since early 2021.

At the time of that big ‘return to the City’ in autumn 2021, the available rental stock was depressed, with almost negligible growth resulting in shortage of available properties coming on the market. London’s rental stock is still far from its size recorded in the years before the pandemic, and according to the latest report from Zoopla, the sector has almost stopped growing. The National Residential Landlords Association finds that London needs 85,000 new private rented homes a year to meet demand.**

In these market conditions current tenants are choosing to renew contracts and stay longer in the same property rather than move, which again is reducing the available rental stock. Many tenants have been delaying the move out of rented accommodation because of the higher mortgage costs linked to the rising UK interest rates preventing them to switch to home ownership. Chase Evans renewals report that the number of longer tenancies has rocketed in the last 12 months with an average tenancy lasting over 20 months.

All this combined provides an environment which stimulates the rise in rents and subsequently in the rental income. According to the Office for National Statistics report published in October 2022, ‘Private rental prices in London increased by 2.8% in the 12 months to September 2022, up from an increase of 2.5% in August 2022. This is the strongest annual growth in London since July 2016.’

According to Rightmove, ‘over the past 12 months to this September, the average amount landlords asked for rent on its site had risen by 17% to £2,361 per calendar month, whatever the size of property.’ Lettings agents estimate that seven people are actively looking at each London rental advertised.

Given the excess of demand over supply, rental prices in London are expected to rise further presenting landlords with higher yields. Worth bearing in mind is the cost-of-living factor, which is expected to impact London rents and rental growth in the years ahead.

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* https://btrnews.co.uk/investors-remain-attracted-to-uk-build-to-rent-sector/

** https://propertyindustryeye.com/london-needs-almost-85000-new-private-rented-homes-a-year-to-meet-demand/