Changing tenant demands as well as an influx of short-term lets is shaping the buy-to-let market in the wake of COVID-19. Will the experience of lockdown mean long-term shifts in the sector?
As we reported earlier this week, the short-term holiday lets market is seeing a major boom right now. While this is good news for that sector, there may be a knock-on effect for long-term rentals, putting pressure on rents until more stock becomes available.
This is one of the predictions from the latest Savills research looking at prime residential rents for Q2 2020. According to Savills, there was a 2% decline in prime London rents between April and June 2020. This is a 0.3% annual fall, with the biggest dips in the north and east of the city.
In contrast, prime rents in west London increased by 0.7%, while in south-west London they only fell by 0.6%. Unsurprisingly, houses are performing much better than flats. More tenants than ever are prioritising both indoor and outdoor space after being in lockdown through COVID-19, so any property offering more space is in extremely high demand.
What about outside the capital?
In the prime markets in the commuter belt around the capital, rents increased by 0.8% in the three months to June. This is a 0.9% annual increase in these areas, showing the trend towards rental demand spreading further from the city.
The Savills report states that 93% of its agents reported an increase in London applicants in commuter locations. Around 50% of agents had also seen “multiple bids” on properties in the commuter belt. Furthermore, as people’s need to actually commute to work has decreased, so has demand for prime property in these locations. People are now more likely to favour more remote or far-flung areas where they can work from home.
Competition among landlords offering more space
Space has always come at a premium in city locations, particularly in London. However, while most tenants would once have accepted less space in exchange for the ideal central location or other amenities, the Savills report notes a definite shift in this aspect.
More than three quarter (79%) of agents report that there’s more demand than ever for workspace in the home. To complement this, top-speed broadband is now even higher up the priority list for tenants. Properties with more bedrooms – which can be used as an office – are therefore seeing more enquiries, particularly in the outer commuter belt.
A vast majority of letting agents (96%) are also getting more enquiries for properties with outside space. Homes with private gardens in central London are hard to come by, so landlords offering such homes are seeing huge demand. The same goes for rental homes near public parks, which were closed during the height of the COVID-19 pandemic.
How things could change
The report concludes that the future of the UK economy will be the driver for how the sector evolves. Tourism is sparking a spike in short-term let properties, while students may also begin to return in higher numbers.
It points out that COVID-19 is likely to have a “v-shaped impact on the UK economy”. This means a short, sharp fall in GDP met with strong growth over 2021.
“There is likely to be a similar reaction in the prime rental market in London, with short-term pressure on pricing but more capacity for growth over the longer term as stock levels steady.”
“For rental markets in the commuter belt, the current strength of demand for family housing should underpin more steady growth over the next few years.”