1. Short-term drivers
2. Longer-term factors

1. Short-term drivers

Over the past few years, the key determinate of rental growth and the rate of increases has been the balance between supply and demand. Looking to 2025, this is expected to remain the case.

Across the prime rental market, the pace of growth has slowed over the past two years, as the market rebalanced and adjusted to more ‘normal’ levels. Peaks and troughs in terms of activity and pricing have also reverted back to more typical seasonal trends, and supply has gradually increased from the historic lows of the pandemic. Despite this, over the coming year, we expect increased regulation from the upcoming Renters’ Rights Bill (RRB) to result in further upward pressure on rents, as supply becomes more limited.

Across prime central London, we anticipate some increased supply from former ‘non-doms’ to enter the rental market. In the short term, this may in part temper some of the underlying effects of constrained supply. Although it is unlikely to move the dial significantly, given the relatively small proportion of those affected. And, future investment is likely to remain limited, as a result of the increased stamp duty land tax (SDLT) on additional homes, alongside rental reform proposals.

Across outer prime London, supply constraints are likely to be more keenly felt. Although, an improving interest rate environment may ease some pressure on those mortgaged landlords. While across the regional market, we expect supply constraints to be driven in part by the new SDLT surcharge. Energy Performance Certificate (EPC) requirements are likely to add to this, especially in more rural locations.

2. Longer-term factors

Over the longer term, the capacity for rental growth will be somewhat limited by the levels seen prior to the post-pandemic slowdown. Affordability constraints amongst some groups of tenants will also play a role.

Across the more domestic markets in outer prime London, affordability is likely to pinch sooner than in higher-value, more central locations. This will limit the extent to which rental growth exceeds prime central London. Elsewhere, the prime regional markets experienced the strongest growth over the past few years, and this will likely constrain the capacity for further significant increases.

Nevertheless, affordability typically has 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. Read more about our prime sales and rental forecasts here.

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Understanding the Renters (Reform) Bill

For more information, please contact your nearest local office or arrange a market appraisal with one of our local experts.