How have the US and UK rental markets been performing?

The US property sector remains sluggish while the UK rental market continues to perform strongly, which could impact interest among overseas investors.

Recently released statistics have shown how the US rental market is currently performing. A report from real estate brokerage Redfin revealed the median US asking rent fell by 0.8% year-on-year in December to $1,964.

That was the third consecutive drop after a 2.1% annual fall in November, which was the biggest decline since 2020. This shows the rental market has lost steam, which is predominantly due to an increase in supply fuelled by the building boom over recent years.

In certain areas of the US, property investors are even struggling to fill their properties. This has motivated landlords to drop asking rents. Some are even offering one-time concessions, such as reduced parking costs or a free month’s rent, to attract tenants.

This also means that the prices renters are actually paying in total are likely coming down even faster than it appears in the data. Other reasons rents are dropping is the ongoing uncertainty as the US economy is showing new signs of slowing down, which often impacts affordability.

Supply in the US rental market

In the US housing market, there are more newly built and under-construction apartments than there were a year ago. And the number of completed apartments is close to the highest level in over 30 years. On top of that, the number of units under construction is just below the record high.

This means renters have an ever-increasing number of buildings to choose from, causing vacancies and void periods to rise. The rental vacancy rate increased to 6.6% in the third quarter of 2023, which is the highest level since the first quarter of 2021.

Chen Zhao, economics research lead at Redfin, says: “High supply—more so than low demand—is driving rent declines. But if mortgage rates continue to drop at a fast clip in 2024, slowing rental demand could become a major driver of rent declines.

“That’s because more Americans would ditch the rental market to become homeowners, leaving landlords with even more vacancies.”

Demand in the UK rental market

At the same time, the UK rental market is seeing particularly strong tenant demand as supply continues to lag behind. The latest data from Goodlord shows that average rents were almost 9% higher across 2023 as a whole compared to 2022. The average rent across England now sits at £1,182.

Despite rents falling slightly between November and December, year-on-year figures show rents still hugely increased throughout the last year. Several records were even broken during the summer with the rental average rising to over £1,300 for the first time. Alongside rent rises, void periods also hit historic lows throughout the past year.

Oli Sherlock, managing director of insurance at Goodlord, comments: “It’s been a rollercoaster year for the market, with rents ending the year significantly up compared to 2022 figures.

“We’ve seen first-hand the unprecedented levels of demand for rental properties, as a growing tenant population has come face-to-face with the entrenched supply and demand issues facing our housing market.

“The lettings industry has striven to keep pace with this demand, as evidenced by some of the historically low void periods we’ve seen throughout 2023. Many agents will have been catching their breath over December, but it’s looking like 2024 will be another year of high rents, escalating demand, and ongoing regulatory changes which will keep the whole market on its toes.”

How this impacts overseas investors

The UK rental market is home to approximately a fifth of the country’s population. So, for those who opt to rent out their property investments in the UK, this helps ensure high demand and strong yields. This is especially the case in certain hotspots within the UK rental market.

Because of the strength of UK property on a global scale, overseas investors are keen on snapping up property here thanks to its exciting long-term prospects. And this will likely continue to entice even more overseas investors to invest in the UK rental market moving forward.

To find the right UK property for your circumstances and preferences, many US investors and other overseas buyers opt to work with an agent or property investment specialist. This is similar to the way property is sourced for buyers in the US – through a realtor. They offer beneficial local knowledge to help investors find the best option for them within the UK rental market.

BuyAssociation is a property investment consultancy specialising in helping investors find their next opportunity in the UK rental market, with numerous years of experience in working with overseas investors. Get in touch for more information.

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