Demand easing as rental market edges back to normality

The UK rental market is experiencing a gradual easing in demand, marking a shift from the peak levels witnessed in recent years, according to Fine & Country. 

However despite the easing, demand still remains 32 per cent above the five-year average, with continued competition in the market expected to support rental growth in 2024.

Nicky Stevenson, F&C’s managing director, says that in October of last year, UK rental growth reached 9.7% per cent. “This growth, although still significant, is slightly slower compared to the 11.9 per cent seen during the same period in 2022. Rental demand has decreased by 11% from the unprecedented levels of the previous year but continues to outpace historical averages.”

According to Rightmove, there are signs of improvement in the supply-demand imbalance, with demand easing and available supply up 14 per cent compared to 2022. However, the market remains highly competitive, with the number of enquiries for each property more than tripling from eight in 2019 to 25 presently.

Stevenson comments on the current dynamics in the rental market: "The market is gradually evolving, and while demand is easing, competition remains fierce. Renters are having to adapt their strategies, being more flexible with schedules and preferences, and being prepared to swiftly undergo referencing to enhance their chances of securing a property in this competitive landscape."

She adds that while rents are forecast to continue to rise steadily, we are past the peak growth, with evidence indicating a cooling in tenant demand in the face of weakening affordability. Although slowing, rental growth is forecast to average 3.6 per cent over the next five years. London is anticipated to lead this slowdown, with rents predicted to rise by just 2.0 per cent next year in the capital.

Increasing regulation and higher mortgage rates will continue to impact new investment in the rental market, maintaining the continued supply demand imbalance and keeping the slowdown in rental growth in check. In the prime market, average rents have reached £3,852, reflecting a 5.6 per cent year-on-year increase. Rental growth in the prime markets is above 2.0 per cent in all regions, with South West leading the pack with 19 per cent year-on-year growth.