In the latest episode of Icons of Relocation podcast, CEO Simon Johnston speaks to Eliza Nissim and Katinka Hill from Chestertons, a leading estate agent in London. They review the state of the rental market across 2022 and forecast how the market may change in 2023 in light of the rising cost of living and changing sales market.
How would you describe the 2022 rental market in London?
2022 was, in a word, a frenzy. There was an extreme shortage of stock and incredibly high demand, all stemming from the impact of the COVID-19 pandemic. Stock levels were at the lowest rate ever, which had a knock-on effect on the price of rental properties. More competition for properties meant there were more offers on each property, leading tenants to offer over asking price to secure the tenancy, meaning that rental levels increased by 15–20% compared to the previous year.
How has the market changed already?
There has been an increase in the number of properties coming on to the market. In December 2022, there were 50% more properties coming onto the market than December 2021. This increase has been driven by two main factors. Firstly, the impact of increased mortgage interest rates, triggered by the mini-budget in September 2022 and driven by high inflation, are causing more ‘accidental landlords’ who may rent out their properties while riding out the variations in the sales market. Secondly, we are now seeing the longer tenancies agreed by tenants during COVID-19 at low rental prices coming to an end. At the end of 2022, there were 12% fewer tenants looking to move than the previous year.
With stock levels and demand levelling out, towards the end of 2022 the rate of rental growth plateaued and has started to come down again. Prices are still going up, but at a much slower pace than before — at around 5% growth rather than 15–20%. This is also due in part to the fact that, with the cost of living increasing, tenants just can’t afford to keep spending more and more on rent.
What are your forecasts for 2023?
Chestertons have published their forecast for this year, predicting a 3–5% rental growth for 2023. It is predicted that the impact of the sales market slowing down in the short-to-medium term will continue to have a positive effect, bringing more stock as property owners rent properties instead of selling. There are, however, lots of buyers who are now looking to rent because of the increased interest rates. In several ways, the state of the rental market throughout 2023 depends greatly on how the sales market copes with rising interest rates and declining house prices.
Although there is less competition for rental properties at the moment, it is likely that there will still be a busy spring/summer period. However, it will probably be a more ‘normal’ market and not as much of a frenzy as 2022, meaning that tenants will have slightly more time to make and feel confident in decisions on rental properties.
Which areas are popular at the moment?
Family-oriented areas and price-levels are very popular at the moment. Prime areas at £2,000 – £4,000 per week have had a severe shortage of stock, meaning that many had put their search on hold and are coming back to the market to search for a property now. With the Elizabeth line opening last year, areas on this new tube route have also increased in popularity.
Recommendations for securing a property
Although levels of stock and demand have rebalanced slightly, tenants still need to be quick in making decisions to secure a property. This is especially so at the £300–£1000 per week level. Rather than holding out for a property that is absolutely perfect, tenants are better off going for something that ticks the majority of their boxes or risk missing out. Signing up to longer leases continues to be more favourable for landlords.