Smaller properties have driven rental growth recently, with city centre flats increasing in value faster than larger homes in the UK.
A reduction in the number of city centre flats available to rent has driven rent rises in this part of the sector, as tenants compete to secure homes in some areas, according to the latest figures from Hamptons.
At the same time, an increase in the amount of stock available for larger homes and more suburban and rural locations has dampened rental price growth in this area, as tenants are finding a greater range of homes to choose from.
This heightened demand for city centre flats among tenants is in part down to the ongoing return to the office – and ‘normality’ – after Covid, with many renters deciding they still want to enjoy the convenience and buzz of living in a city centre.
City centre flats harder to come by
Anecdotally, many landlords and agents are reporting unprecedented demand when they list property available to rent in a city, including the capital.
On Landlord Today, one landlord commented: “I’ve recently advertised a one bedroom flat in London. I have had over 170 viewing requests in a very short time – on two websites. Open Rent paused my advert otherwise I would have had a lot more.”
Overall across all markets and property types, renters are now paying an average 8.3% more than they were 12 months ago, according to Hamptons research. Rents are now 15.7% higher than they were at the very beginning of the pandemic.
The figures released in July’s report show the sixth strongest annual increase recorded over the past decade, and as the paper notes, this has been driven by a major recovery in rents across city centre flats, after demand dipped during the height of the pandemic.
London’s racing rents
Honing in on one-bedroom city centre flats, rents have risen by an average of 10.4% over the past 12 months, meaning they now cost 13.6% more to rent than they did at the start of the pandemic.
Comparing this to a four-bedroom rental home, the year-on-year growth recorded by Hamptons was 6.6%, with an overall rise since pre-Covid of 17.6%, demonstrating the slowdown.
In London, despite being the most sluggish recently in terms of house price rises, rents are soaring at a rapid rate. In the inner parts, rents are up by a huge 33.6% compared with 12 months ago – by far the fastest growth rate seen across the country.
However, as Hamptons notes, the market is showing recovery after a major trough seen in some parts during the pandemic, meaning many see it more as a market correction than a significant sign of any major changes in the rental sector.
Average rents, in fact, are just 1.5% above what they were in January 2020, and rental growth is on a par with what it was in July 2016.
Low stock levels driving prices
Behind London’s steep rental rise is the dearth of available properties to rent, including city centre flats. The number of properties listed is down by 37% in the capital compared with one year ago.
Across the UK as a whole, stock levels were down by 9% in July compared with the previous year, while there are 52% less properties available to rent now than there were two years ago.
Aneisha Beveridge, head of research at Hamptons, says: “There are some signs that the rental stock slump is close to bottoming out. But with two-thirds fewer homes on the market than five years ago, there isn’t room for them to fall much further.
“In a reversal of last year, it’s city centre markets which have seen the biggest year-on-year falls in the number of homes up for rent, meaning it’s here that tenants are still facing double-digit rental growth. Meanwhile suburban and country markets have quietly recorded small rises in stock levels and have seen rental growth soften.”