Residential Property Focus

Residential Property Focus
 
Rent ascent

3 November 2016, by Lawrence Bowles

Our new and improved forecasts show the rental growth outlook at a city level

 

The outlook for rents is stronger and more stable than for house prices over the next five years. Like the sales market, the rental market faces uncertainty. However, rental values are more closely linked with incomes than with measures that drive house price growth such as interest rates and mortgage availability.

Rental growth will slow next year because of tightening affordability and the effects of Brexit. Greater uncertainty, higher inflation, and a weak pound will impact how much households can spend on rents. However, the barriers to home ownership remain high. Renting will remain the tenure of choice for younger households.

For the first time, we have forecasts for local cities as well as the UK and London. In many areas, such as London and Bristol, affordability is already stretched. Rental growth in these markets will be supported by an increase in the number of sharers as well as income growth. As affordability tightens further, households will seek to split their rents between more earners.

High housing and office costs in London make regional cities look increasingly attractive. The prospects for Bristol, Birmingham and Manchester are particularly strong. Their knowledge intensive and high tech economies draw in the most highly skilled (and paid) employees. A vibrant cultural scene, world class universities, and extensive regeneration all help to drive the rising demand for properties. This demand has been largely unmet by new stock, supporting rental value growth.

Cities with fewer jobs in knowledge intensive sectors such as law and consultancy are expected to have lower income growth, limiting the capacity for rents to rise. Similarly, economies that rely more on the public sector will see lower income growth over the next five years as the Government continues with budget cuts. As a result, we have forecast lower rental value growth for cities such as Sheffield and Nottingham.

FIGURE 6

Mainstream rents: Five-year forecast values

 
Mainstream rents: Five-year forecast values

Source: Savills Research

FIGURE 7

Five-year rental growth forecast

 
Five-year rental growth forecast

Source: Savills Research

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