Knight Frank: Tenant demand to continue to pressurise rental values

Michael Lloyd

December 19, 2019

Tenant demand will continue to exert upwards pressure on rental values in mainstream rental markets during the next five years, Knight Frank has predicted.

It said that the largest cumulative growth is forecast to take place in the capital.

Franz Doerr, founder and chief executive of flatfair, said: “Higher rents create a barrier to entry for the ever-increasing number of renters within the UK.

“Any surge in rent in the new year will push up not only monthly costs, but also the lump-sum deposit at the beginning of a tenancy, which bars more and more renters from accessing the homes they want.

“With the technology we have available today, this large upfront cost is not necessary and we can protect landlords from any damages or rent arrears that may occur without tenants having to lay out heft amounts from the outset.

“At this time of year, when budgeting can leave people feeling stretched, there have to be public and private efforts made towards changing outdated elements of renting, like traditional deposits.

“Hopefully, our new government will be hungry to generate reform in the sector by supporting existing deposit alternative technology, reducing costs for renters throughout the country and offering greater protection for landlords.”

Knight Frank expects rental value growth to gain momentum after 2020 as more political certainty returns to the UK after it enters the transition phase next year.

It forecasts a similar pattern in prime London rental markets, with rental value growth over each of the following five years.

Knight Frank has predicted lower-value rental markets in the capital to outperform in the short-term, with 3% growth in prime outer London forecast for 2020.

Furthermore, it said that housing will remain a key political issue as the Conservative government looks to redress perceived imbalances across the country and any reversal of recent tax changes for buy-to-let investors appear unlikely.

Knight Frank said this will put further upwards pressure on rental values and lead to the increased professionalisation of the private rented sector.

New supply will come from the Build to Rent (BTR) sector and there are currently around 132,000 units of purpose-built rented accommodation in the pipeline.

However, the estate agent said that while the BTR sector will play an increasingly important role, its relative scale compared to 4.6 million PRS households across the country should be seen in context.

Young professionals, those aged 25 to 34, no longer make up the largest group living in the private rented sector, having been overtaken, albeit marginally, by 35 to 49-year-olds.

This age group is also expected to show the biggest growth in households in the private rented sector over the coming years, with difficulty in obtaining a mortgage deposit to buy a home remaining a hurdle.

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