City centres are back in favour as high rental demand returns


City centre living will always be popular among tenants wanting to be in the thick of the action, and it seems rental activity has well and truly rebounded. 

The latest UK Rental Market Report from Zoopla demonstrates how demand for homes is growing across the private rented sector, with an increase of +8.3% in new lets in Q4 2021 compared to the same period in 2020.

And heightened demand has been noted in the country’s city centres, particularly over the past six months. The pandemic arguably created a dip in appetite as amenities in cities temporarily closed down, and some tenants chose to move further afield, but life is now beginning to return to normal for many.

Offices have reopened, students are returning and international demand is climbing once again, says Zoopla, which is all creating a buzz around UK cities.

Tenants seeking homes in the city centre

“Rental demand has risen strongly amid increased activity in city centres, but supply is still constrained, leading to the fastest growth in rents in Q4 than at any time over the last 13 years,” says Gráinne Gilmore head of research at Zoopla.

The data shows that around 8% of previously rented properties were put up for sale in the second half of last year, as some landlords cashed in on gains, and either left the market or reinvested elsewhere. Stamp duty changes and taxes against landlords have also created reductions, says the report.

On a city-by-city level, rental price growth in London has been the highest, indicating growing demand, with an 11% annual rise in inner London. This is followed by Manchester, where the rental market has been booming, with a 9.7% increase.

Birmingham closely follows with a 9.6% rise over the past year, matched by Leeds. All of these cities contain highly regarded universities, high levels of young professionals and flourishing jobs markets, as well as exciting regeneration projects creating homes, jobs and amenities.

Rising rents but affordability stable

Zoopla notes that, while constrained supply levels combined with growing demand have pushed up rental prices, affordability remains largely in line with the 10-year average. The percentage of salary to cover rent for single earners is currently at 37%.

“The headline affordability metrics suggest that rents could rise more before affordability becomes very stretched,” says the report.

“There is flexibility in the rental market among those with more disposable income, who can adjust their rental expectations in line with their budget, choosing a slightly smaller property to lock in a lower headline rent.”

“However any rises in rents will be felt most keenly by those on lower incomes who have less choice in the market.”

Tenants sharing rent with another person will find their rent accounts for 18% of an average income, according to Zoopla’s data.

Landlords confident in the market

It is hoped that supply issues will begin to resolve, and the January peak of demand will ease into the second quarter of this year. The city centre rental market may still be increasingly popular among tenants, but landlords are also recognising this demand.

Recent research from Shawbrook Bank revealed that more than a third (34%) of landlords plan to purchase at least one more property over the coming year. A further two thirds (67%) say they are confident in the UK property investment market over the next 12 months.

The report, which used a combination of research from ONS and Ministry of Housing data, as well as an Opinium study, also revealed that flats remain a popular option for landlords. This tallies with recent reports that house price rises have been the most marked in flats and city centres in recent months.

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City centres are back in favour as high rental demand returns


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