The UK rental market is experiencing a gradual easing in demand, marking a shift from the peak levels witnessed in recent years. Despite the easing, demand remains 32% above the five-year average, with continued competition in the market expected to support rental growth in 2024.
Commenting on the data, Nicky Stevenson, Managing Director of premium estate agency, Fine & Country, says that in October of last year, UK rental growth reached 9.7%, outpacing earnings growth at 7.9%. She adds, “This growth, although still significant, is slightly slower compared to the 11.9% seen during the same period in 2022. Rental demand has decreased by 11% from the unprecedented levels of the previous year but continues to outpace historical averages.”
According to Rightmove, there are signs of improvement in the supply-demand imbalance, with demand easing and available supply up 14% compared to 2022. However, the UK rental market remains highly competitive, with the number of enquiries for each property more than tripling from eight in 2019 to 25 presently.
Stevenson comments on the current dynamics in the rental market: “The market is gradually evolving, and while demand is easing, competition remains fierce. Renters are having to adapt their strategies, being more flexible with schedules and preferences, and being prepared to swiftly undergo referencing to enhance their chances of securing a property in this competitive landscape.”
Looking ahead, Stevenson notes that while rents are forecast to continue to rise steadily, we are past the peak growth, with evidence indicating a cooling in tenant demand in the face of weakening affordability. Although slowing, rental growth is forecast to average 3.6% over the next five years. London is anticipated to lead this slowdown, with rents predicted to rise by just 2% next year in the capital.
Increasing regulation and higher mortgage rates will continue to impact new investment in the rental market, maintaining the continued supply demand imbalance and keeping the slowdown in rental growth in check. In the prime market, average rents have reached £3,852, reflecting a 5.6% year-on-year increase. Rental growth in the prime markets is above 2% in all regions, with South West leading the pack with 19% year-on-year growth.
Stevenson adds, “The prime market is robust, with rents continuing to rise. However, challenges such as increasing regulation and higher mortgage rates are expected to influence the market dynamics, ensuring a controlled slowdown in rental growth.”