UK rents surged in 2022 against a backdrop of growing political and economic uncertainty. The average rent climbed from £1,064 in January to £1,175 in November - a 10% jump in less than a year, according to HomeLet Rental Index (November 2022).
Charlotte Russell, area director for core lettings, says: “2022 was an extraordinary year with huge demand in the UK rental market. The resurgence of London living was at its peak and showcased by the additional 10.2% of renters looking for homes versus 2021.”
So will the rental market continue on a similar trajectory in 2023? Here’s our rental market outlook.
Rents
UK rents are expected to rise 4% in 2023, driven by an ongoing imbalance between rental demand and market supply in rental properties.
Strong rental growth is forecast in major urban areas as students and young professionals return to the big cities after Covid-19.
Looking at the regional city centres, Manchester - one of the fastest-growing economies in the UK - is predicted to have the strongest rental growth. Rents in the area could increase by 6%.
Birmingham and Bristol are expected to follow, with rental growth of 5% and 4% respectively. Meanwhile, rents are forecast to rise by 3.5% in Leeds and Liverpool, and 1% in Edinburgh and Glasgow.
This trend of strong rental growth in city centres looks set to be echoed in London too. Rents this year are predicted to climb 6% in the heart of the city and 4.5% in the outer areas.
House prices
The UK housing market is expected to be sluggish in 2023. A combination of higher rates, poorer sentiment and the cost of living squeeze is likely to result in a fall in house prices and property sales.
UK-wide house prices are predicted to drop 6% before recovering in 2024. Falls are set to range from around 4% in Greater London and 5% in Scotland, to around 8% in Wales, the north east and Yorkshire & The Humber.
But the outlook for the UK’s city centres is much brighter. House prices are expected to grow in many of these areas, eclipsing the wider housing market.
House price growth is predicted to stand at 0.5% in Bristol, 1% in both Birmingham and Edinburgh, and 1.5% in Manchester.
Central London is forecast to have the highest level of house price growth of any UK housing market. Values are expected to climb 2.5%.
Rental demand
High demand for rental properties is set to continue in 2023. The cost of living squeeze and higher mortgage rates are likely to delay some aspiring homeowners from buying their first home. The end of Help to Buy in March is also expected to lead to some renters staying in the rental market for longer. The government scheme helps people with a small deposit to buy a new-build home.
The rising cost of living is also likely to shape the types of properties renters are drawn to. Energy-efficient new-build city centre homes are set to be particularly sought after as renters try to keep a lid on energy costs. Up to 85% of renters in our Tenant Survey Report say the environmental efficiency of their property is important to them.
Russell says: “The surge of tenants wanting to be close to transport for a quick commute to work as well as a high number of students returning to study is likely to be the continuous source of demand in 2023. The traditional seasonal market is expected to remain in place. It typically sees a huge peak in summer, which will only continue to push rents upwards.
“This demand has created a notable supply deficit of 23% fewer properties in 2022 and we are unlikely to see this change in the near to medium term. 2023 is set to continue with a shortage of homes, which in turn will add pressure to rental increases.”
Supply of homes for rent
Strong rental demand, rising rents (outperforming house prices) and low or almost non-existent voids will all encourage landlords to remain in the market in the short to medium term, says Marcus Dixon, director of UK residential research.
Some landlords, particularly well-financed ones, could see a window of opportunity to snap up properties at potentially reduced prices.
Given the headwinds in the market, landlords thinking of selling may reconsider and continue to rent their properties out while uncertainty lasts, says Zoopla’s Rental Market Report (December 2022). This scenario could apply to homeowners too.
Strong institutional investor appetite to fund the development of homes for rent is also set to continue in the months ahead.
But landlords do face challenges, such as higher rates, changes to capital gains tax rules, and proposed new legislation. There will be some who chose to exit the market.
Overall, there isn’t likely to be any significant rise in the supply of rental homes in 2023 - and this will fuel rent rises.
Russell says: “It’s good news for landlords heading into 2023. The demand for properties from professional tenants looking for long-term tenancies will in turn create a more cost-effective asset with a lower level of wear and tear as well as a higher level of rent.”
JLL sources:
UK Residential Forecasts (Q4 2022)
Help to Buy Survey Report (November 2022)
