Savills has presented its quarterly review of the rental market, concluding The prime rental markets have reverted to pre-pandemic patterns, but as the market cools, a closer alignment between tenants’ and landlords’ rent expectations will be vital.

The original can be seen here, and in summary:

Introduction

The second quarter of 2024 has shown notable changes in the prime rental market in Britain, reflecting a return to pre-pandemic patterns. Although rental values continue to rise, the annual growth rate has significantly decelerated. This report examines the key trends and factors influencing the current state of the market.

Market Trends

Slowing Annual Growth

While rental values have increased, the annual growth rate has softened from the highs of previous years. This cooling trend is attributed to increased market stock and affordability barriers that prevent further significant rental hikes.

• London: Prime rents increased by 0.7% in Q2, up from 0.3% in Q1, but annual growth slowed to 2.5%, the lowest since September 2021.
• Outside London: Prime residential rents rose by 1.2% in Q2, with annual growth dipping to 2.6%, the lowest since September 2020.

Regional Differences

• Outer Commuter Zone and South West: Experienced the strongest rental growth, driven by a strong summer market and family demand.
• Regional Towns and Cities: Showed more subdued growth, typically experiencing higher demand in the latter half of the year from international tenants, young professionals, and students.

Property Types

Houses vs. Flats

Houses have outperformed flats across most prime rental markets.

• London: Despite rising stock levels, houses and larger properties in areas like Chiswick, Ealing, Islington, and Shoreditch remain in short supply. However, South West London shows signs of nearing the end of its strong growth trajectory.
• Prime Regional Markets: Houses outperformed flats, with significant growth in the South West and regional towns and cities, driven by seasonal demand.

Tenant and Landlord Expectations

Widening Misalignment

There is a growing gap between tenant and landlord expectations, particularly in London.

• Tenant Expectations: 63% of Savills London agents reported that tenants’ rental expectations had eased in Q2.
• Landlord Expectations: 63% of agents noted that landlords anticipated continued rental growth.

In regional markets, the majority of agents reported unchanged tenant expectations, while over a third observed that landlords expected rent increases. Realistic pricing and property condition are crucial for securing deals as the market cools.

Outlook

Market Rebalancing

The return to pre-pandemic seasonal trends suggests a continued rebalancing of the market. Rent growth is expected to persist but at a more subdued rate due to affordability constraints and a better balance between supply and demand.

• 2024 Projections: Rents are expected to rise, but growth will likely be muted towards the year’s end, aligning with the typical winter slowdown.

Impact of Rental Reforms

The 2024 King’s Speech included Labour’s plans for the Renters’ Rights Bill, which could temper any increase in available stock. The implications of these reforms on the prime rental market will be significant and warrant close monitoring.

Conclusion

The prime rental market in Britain is experiencing a period of adjustment, marked by slower annual growth and a return to pre-pandemic patterns. The disparity between tenant and landlord expectations highlights the need for realistic pricing and well-maintained properties. Looking ahead, the market is expected to stabilize, with modest rent increases and potential impacts from upcoming rental reforms.

Key Takeaways

• Slowed Growth: Annual rental growth rates have decelerated significantly.
• Regional Variations: Strongest growth observed in the outer commuter zone and South West.
• House Demand: Houses outperform flats in the prime rental market.
• Expectations Gap: Misalignment between tenant and landlord expectations, particularly in London.
• Future Trends: Market expected to rebalance with modest growth, influenced by new rental reforms.

This analysis underscores the evolving dynamics of the prime rental market, providing valuable insights for investors, landlords, and tenants navigating these changes.