The residential rental forecasts for the UK property market continue to remain positive, indicating that the Covid-19 pandemic had a minor impact on the rental market. Rents are expected to increase by 5.5 per cent in 2021 and 13.6 per cent over the next five years, according to a report published by global real estate expert Savills.
Rental values tend to be more resilient than capital values during a downturn in the UK. Rents fell just -2 per cent following the global financial crisis, whereas house prices fell -18 per cent. “We expect rents will also remain relatively resilient in the coming months and years, albeit there may be greater pressure in areas more reliant on international tenants and students,” the report said.
Rents in London are forecast to grow by 6.5 per cent in 2021 and 4 per cent in 2022. Savills based the forecasts last November on rents continuing to rise in line with income growth. It expects this relationship to continue. Taking into account the revised income growth forecasts from Oxford Economics, Savills suggested that rents are likely to rise 13.6 per cent by the end of 2024, slightly lower than the 15.4 per cent growth that they had predicted previously.
Taking this together with the price forecasts, Savills suggested that rental yields would be slightly lower in 2024 relative to today, in line with lower interest rate expectations. However, yields will fluctuate over the short term. This could create attractive opportunities for investors willing to hold for the long term, the Savills report said.
Yields will fluctuate over the short term. This could create attractive opportunities for investors willing to hold for the long term.