The Future of the Rental Industry in the UK

In this article, we analyse data collected from several sources, including, our own software, Landlord Studio, to gain a unique insight into the impact that COVID-19 has had on the real estate and rental market industry over the last year and what this might mean for the future.

To identify the emergent trends and make our predictions for what these trends could mean for the future of the UK rental market, we looked at four specific data points. Rent arrears, vacancy rates, city centre migration, and average rent and house prices.

We Saw an Increase in Rent Arrears in the UK

We sampled approximately 4,500 active leases across the UK and observed a direct correlation between COVID-19, and the market’s instability.

April and May experienced big increases in rent arrears, with roughly 4% and 4.2% respectively compared to March.

Additionally, while many tenants managed to catch up with their rent arrears over the following months we saw a gradual increase of missed payments between September to January 2021. With a total of 3.2% more missed payments in January than September.

We Saw a Rise in Vacancies Throughout 2020

Using the same data sample, we also saw a rise in vacancies in 2020. There was a 2% month-on-month rise in vacancies between March and April.

And while these occupancy rates bounced back in the middle of the year, towards the end of the year and into 2021, we have seen a steady drop of over 2% again.

People Moved Out of City Centres

Asking rents in some of the UK’s biggest city centres saw annual falls of up to 12% in the last quarter of 2020 as tenants swapped centres for suburbs.

– Rightmove

According to data supplied by Rightmove, the increased vacancy rates we saw in our data aren’t universal for every part of the UK.

There has been a big shift of renters moving away from city centres, with London being hit the hardest where the average rents fell YOY by 12.4%, followed by Edinburgh city centre being down 10%, and Manchester city centre being down 5.3%.

This drop in asking rent is driven by a rapid increase in the number of rental properties on the market in these specific locations.

Rightmove reports that the number of rentals in some city centres more than doubled, with the biggest jumps in Leeds, which was up 179%, Inner London being up 139%, and Nottingham being up 139%.

Despite city centres being hit hard average rents actually rose in 2020 showing that many locations benefited from this move towards the suburbs.

House Prices and Average Rents Increased

Home prices and average rents actually rose in 2020 up by 6.6% and 2.9% respectively (£319,945 median house price).

– Homelet

Average asking rents across the UK over this period have actually continued to rise despite market uncertainty.

Why Are We Seeing These Trends?

2020 was a difficult time for a lot of people. Lockdown has meant that many businesses simply can’t operate.

Many of those individuals employed in these hard-hit industries, such as hospitality, have found themselves out of work and may have very well needed to look for more affordable living space, no longer tied to a job or specific location.

What is more, it’s currently required for landlords to give 6 months’ notice to evict a tenant, meaning landlords are being particularly selective with their tenants.

This goes some way to explain the increase in rent arrears, rising vacancies, and a shift away from city centres.

However, additional factors have also played a role in forming these trends, such as the fact that most students have been back home over this period as opposed to living in their respective university accommodation.

It’s unsurprising then that university cities such as Nottingham saw massive increases in available properties.

On top of this, we have to consider the shift that has happened over this time in renter demand. There has been a normalisation of working from home, so location has become less important, and instead, people are now focusing more on space and affordability.

Why though with the uncertainty and change have house prices and average rents continued to rise?

While more property is becoming available and smaller landlords are selling up their unsustainable positions, equity-rich investors are continuing to add to their portfolios with long-sighted goals.

It’s also worth mentioning that the Stamp Duty Holiday ends in June and the government scrapped support for first time home buyers in December, effectively creating “deadlines” for those thinking about purchasing a property.

What do these Trends Mean for the Future of the Rental Industry?

Ultimately, as a landlord or property investor, you want to know one thing. Is the rent going to come in on time and in full every month?

The real estate and rental market trends we’ve outlined so far show that the chances of your tenants falling into rent arrears – or your property having an elongated vacancy are statistically on the rise dependent on your properties location.

And we’re likely to see a continuation of these trends at least for the first half of 2021 as we continue to deal with COVID-19.

The overall economic impact of shutting the country down for the better part of a year is likely to mean a fairly slow recovery, however, with the aggressive rollout of the vaccine we may see things begin to return to normal towards the end of 2021.

What this will mean is an influx of people moving back to city centres and a strengthening of the rental property industry.

How Can Landlord Studio Help your Navigate These Negative Trends

Landlord Studio can help you navigate the current trends and provide you with the tools to better your financial position.

Landlord Studio was built with a single purpose in mind. The simple financial management and tracking for rental properties.

As such, we have built a suite of tools to help you both manage your leases, rent arrears, tenants, and expenses, so you can stay on top of your finances, despite facing the complexities and challenges of the impact of COVID-19.

With landlord Studio you can:

• Simplify your income and expense tracking
• Connect your bank account
• Smart scan receipts
• Instantly generate professional reports
• Automate tenant communications
• And more…