Residential Lettings – Outlook for 2022

The supply squeeze in the rental market is expected to tighten during the early part of 2022. Supply will likely remain low in London and the Home Counties while demand surges thus keeping upward pressure on rents.

It has been well documented recently on how the UK residential sales market is on the road to some normality, and with supply, mortgage rates and overseas buyer numbers predicted to rise over the coming months it will be interesting to see how this develops.

The journey back to normality for the lettings market in London and the Home Counties is however likely to take longer.

Students and Corporate Tenants account for a large part of demand, which has got stronger over the last 12 months as offices and Universities re-opened.

Supply has been more erratic over the same period. It surged during the early days of the Covid-19 pandemic as properties that would otherwise be used for short-lets and ‘Airbnb’ staycations moved into the mid-long let markets.

As lockdown restrictions were relaxed and travel resumed, the ‘Airbnb’ operators switched back, meaning prospective tenants were suddenly caught up in a so-called dash for stock.

The stamp duty holiday in 2021 exacerbated the situation, with many landlords deciding to capitalise on the tax break by opting to sell.

After some jitters before Christmas when the Omicron variant first appeared, students and companies are now back seeking accommodations. Their problem is that rental supply remains tight.

Data released by Knight Frank recently shows the number of corporate relocation enquiries was five times higher in the final quarter of last year than it was in Q2 2020. The enquiries come from companies of all sizes looking to relocate staff to the UK across a range of sectors including finance, tech and energy.

There will also be a steadier flow of students looking for rental properties during the early part of 2022 than in previous years, which will accentuate this demand.

Demand from corporate tenants is expected to rise as spring approaches and companies that are activating or re-activating plans may find they are doing so at the same time as their peers.

“Everything is pointing towards a continued shortage of rental accommodation during the first half of 2022,” says Darren Haughton, Director of Property Services at CoreProp Group. “Any re-balancing between supply and demand will come later this year and as a result, rents are likely to keep rising”.

According to Knight Frank, average rents rose 2.9% in prime central London last year and we all forecast higher growth during 2022 . In prime outer London, rents increased by 3.7% in 2021.

Strong rental value growth will hopefully tempt landlords back into the market, which would help redress the balance and furthermore, while we expect sale values to increase this year, rising mortgage rates could see demand begin to fray. Together with rising supply, this is likely to put downwards pressure on prices, which means rental returns may start to look a little more attractive.