PRIME RENTAL SHORT-TERM DRIVERS
The balance between supply and demand has been the key driver in the rental market over the past few years. And this is still expected to be the case as we look forward.
In the prime market, the pace of rental growth has slowed significantly over the past two years, as the market rebalanced. Demand returned to more seasonal patterns. Meanwhile, supply increased from the acute shortages of 2021 and 2022, albeit remaining low in an historic context.
Looking forward, we expect increased regulation from the upcoming Renters’ Rights Bill and the additional 2% Stamp Duty Land Tax (SDLT) surcharge to result in further upward pressure on rents, as supply continues to be limited. Our client survey suggested that landlords’ confidence has declined over the past 12 months and appetite for future investment remains muted. However, plans to dispose of property are much more varied and will depend on individual landlords’ circumstances.
Over the longer term, the capacity for growth will be somewhat limited by the effect of the burst of rental growth seen prior to the recent slowdown and corresponding affordability constraints amongst certain groups of tenants. These typically have less of an impact in the prime rental markets than in the mainstream, meaning the supply and demand imbalance will likely continue to be the main driving factor behind further rental growth.