What next for the UK residential lettings market? - 2nd February 2021 Welcome and thank you for joining - Savills
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What next for the UK
residential lettings market?
2nd February 2021
Welcome and thank you for joining.
You are on mute for the duration of this
webinar.
We will begin shortly.
1
Speakers
Guy Ruddle Jane Cronwright- Dan Parker Lucian Cook Jessica
CEO First Touch TV Brown Head of Region, Head of Residential Tomlinson
Head of Residential London and Research Residential
Lettings Regional Cities Research Analyst
2
Panel Discussion
Amelia Greene Matthew Salvidge Stuart Small
Head of Region, Head of Lettings Head of Cluster,
London Corporate Services Country
3
Market overview
Lucian Cook
4
Unprecedented disruption to the economy
Monthly GDP Economic Output Q3 2020 v Q4 2019
105
Arts, Entertainment & Rec
Accommodation & food services
100
Administrative % support
95 Transportation and storage
Human health & social work
90 Other Service Activities
Education
85 Activities of HH as employers
Professional, scientific & tech
80 Information and comms
Manufacturing
75
Mining and quarrying
Electricity, gas and steam
70
Financial & insurance
65 Real estate
Water supply etc
60 Repair of motor vehicles
Nov-97
Nov-98
Nov-99
Nov-00
Nov-01
Nov-02
Nov-03
Nov-04
Nov-05
Nov-06
Nov-07
Nov-08
Nov-09
Nov-10
Nov-11
Nov-12
Nov-13
Nov-14
Nov-15
Nov-16
Nov-17
Nov-18
Nov-19
Nov-20 Public Admin and Defence
-30% -25% -20% -15% -10% -5% 0% 5%
Source: ONS 5
A significant divergence in the housing market
Mainstream House Prices Mainstream Rental Values
+7.6% -0.4%
Great Britain Great Britain
+9.7% -6.1%
London London
Source: ONS to end November 2020 Source: Zoopla / Hometrack to end November 2020
6
The private landlord’s dilemma
Interest rates expected to stay lower for longer
Short term pain from voids and non-payment of rent
End of section 21 postponed not cancelled
Prospect of increased CGT rates & EPC requirements
7
Impact on drivers of demand and supply in the rental market
PRS tenants Households
Reduced
more exposed seeking larger
student
to risk of homes out of
demand
unemployment the city
More
New supply competition
from AirBnB & from new build
holiday lets supply in
some markets
Sharers Reduced
moving back corporate
to family home demand
8
Similar trends in the prime rental market
Prime London Prime commuter belt
10%
8%
Q4 20 Annual 5 year
6%
Prime
4% Central -1.9% -6.6% -21.2%
Annual growth
London
2%
0%
Other
Prime -1.3% -2.6% -5.4%
-2% London
-4% Prime
Commuter +0.7% +3.4% -0.3%
-6%
Belt
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Jun-20
Source: Savills Research 9
Prime rents: not just London v commuterland
+0.2% +2.6%
5+ bed City
properties
-1.0% +3.2%
4 bed Town
properties
-4.5% +3.8%
3 bed
properties Village
-6.1% +4.4%
1 or 2 bed Rural
properties
Source: Savills Research 10Looking forward
More short term
pain to come Reduce some
Allow London
from the of the impact of
to regain its
economic “lockdown
buzz
fallout of the lifestyle” drivers
pandemic
But the
vaccination See stock
programme return to the
should short term
progressively… lettings market Weaker levels
of income
Restore
growth and
international
higher levels of
student and
taxation may
corporate
act as a longer
demand
term drag on
rental growth
11Looking forward
Autumn 2020
forecasts
2021 2022 2023 2024
Prime London +1.0% +4.5% +2.0% +3.0%
Prime
Commuter Belt
+2.0% +1.5% +2.0% +2.0%
Source: Savills Research 12Survey results
Jessica Tomlinson
13Tenant & Landlord Survey In December 2020 we surveyed over 500 landlords and tenants of prime property to find out how Covid-19 had impacted their views on the rental market. Here are their answers…
Survey profile
Reason Tenant 62%
for Demographic Aged 39 or
renting Outside under
Outside of London higher
London higher percentage of
percentage families with
trying out a pre-school or
new area school aged
58% children 1/4
37% single
Aged 50-59
Not yet ready household or
outside of
or able to buy couple without
London
children
Source: Savills tenant & landlord survey, December 2020 15Rental
expectations
16Rental value expectations over the next year
London rental expectations over the next 12
months
40%
35% In London 55% of landlords anticipate
rents will stay the same or increase
30%
over the next 12 months
25%
20%
15% Whilst two thirds of tenants in
10% London think rents will fall over the
next 12 months
5%
0%
More than - -5% to - 0% to -5% No change 0% to +5% +5% to More than
10% 10% +10% +10%
Landlords Tenants
Source: Savills tenant & landlord survey, December 2020 17Rental value expectations over the next year
Country rental expectations over the next 12
months
45%
Meanwhile in the country 57% of 40%
tenants expect rents to stay the 35%
same or increase marginally by up to 30%
5%
25%
20%
72% of landlords anticipate rents
15%
10%
to stay the same or increase by up
to 5% 5%
0%
More than - -5% to - 0% to -5% No change 0% to +5% +5% to More than
10% 10% +10% +10%
Landlords Tenants
Source: Savills tenant & landlord survey, December 2020 18Rental value expectations over the next 5 years
The majority of landlords and tenants thinks
In London rents will increase over the next 5 years
but with stronger rental growth than in London
The majority of both tenants and landlords think
In the country
rents will increase over the next 5 years
Source: Savills tenant & landlord survey, December 2020 19The next rental property
What do you want in your next rental property?
1• Location
2• Property attributes
3• Condition of property
4• Value
5• Services available
Source: Savills tenant & landlord survey, December 2020 21Working from home becomes more important
84% 81%
Of those in
Of those in the the finance &
media, insurance
information & services
tech sector sector
Source: Savills tenant & landlord survey, December 2020 22What do you want in your next rental property?
1• Proximity to tube/train
2• Proximity to park or other open space
3• Proximity to shops and other local amenities
4• Proximity to place of work
5• Proximity to schools
Source: Savills tenant & landlord survey, December 2020 23Length of tenancies
Trends in tenant occupation
66% of tenants are currently in a tenancy for 12 months or more
Outside of London 38% are currently in a tenancy for less than 12 months
1/3 of tenants have rented for 5+ years and 1/3 have rented for less than a year
Outside of London 44% have been renting for less than a year
In London 55% of tenants anticipate they will rent for between 1-3 years
Outside of the capital 54% anticipate to rent for less than a year or 1-2 years
Source: Savills tenant & landlord survey, December 2020 25The disrupters
26The disrupters
88% Only 1/3 would be
Taxation and regulation
said stamp duty holiday prepared to spend £5,000
remains the biggest
hasn’t impacted decision on energy efficiency
concern for the majority of
making improvements over the
landlords
next 4 years
Source: Savills tenant & landlord survey, December 2020 27Thank you © Savills 2021
Tenant & Landlord Survey Market Messages Dan Parker
Part 1: Escape to the Country
average rent change for p
Cotswolds office
2020 average value rent agreed
£1503pw
let by Cotswolds
average rent change for properties let by
Cotswolds
Cotswolds office
2019 average value rent agreed
£588pw
30Urban vs Rural
London and Regional Cities Average rents for deals agreed
Jan 2020 - July 2020: +27%
Properties Available Applicants
2,500 7,500 July 2020 - Jan 2021: -8%
Jan 2020 - Jan 2021: +15%
2,000 6,000
Country
Properties Available
1,500 4,500 Properties Available Applicants
Applicants
700 2,100
1,000 3,000 600 1,800
500 1,500
Properties Available
500 1,500
400 1,200
Applicants
0 0 300 900
Jan-20 Jul-20 Jan-21
200 600
Average rents for deals agreed
Jan 2020 - July 2020: -18% 100 300
July 2020 - Jan 2021: +10%
0 0
Jan 2020 - Jan 2021: -9% Jan-20 Jul-20 Jan-21
Source: Savills 31Micromarkets
Manchester (and Birmingham) Cheshire
Leafy suburbs Shoreditch/Clerkenwell
32Part 2. Right now: mixed messages
33Hot off the press…..
Lockdown III:
applicant Impact of
Record
registration virtual January for
still at historic viewings and total deals agreed,
but at average
seasonal Covid rents for new
highs. Last restrictions deals 9% below
week…. BUT slight Still big regional Jan 2020
slowdown in variations,
registrations though not as
in last 2 marked as July
+24% weeks 2020
London Stock
Impact of
VS average pre- Levels extended
pandemic week of
2020
Now nationally Lockdown
below average of
+74% pre-pandemic III…
weeks of 2020
Country
Source: Savills Tenant & Landlord survey, December 2020 34Looking forward: good news and less good news….
Terminations 2021 vs 2020 Renewals 2021 vs 2020
Jan Feb Jan Feb
Fewer terminations
= supply of available
3% property more predictable
More/similar
renewals
= higher proportion of total
portfolio staying in tenancy
-11%
More confidence from
existing tenants in
eventual return to
normality
-18% -7%
Source: Savills 35Corporate enquiries comparison, Sept-Dec
September - November December Only
1,600 300
1,400
250
1,200
200
1,000
800 150
600
100
400
50
200
0 0
2018 2019 2020 2018 2019 2020
Source: Savills 36…and the less good news. January 2021 Corporate Enquiries vs Historic Average
2021 Historic Avg
120%
Record January deal numbers
110% across our network
100% February market more
challenging
90% Primary issues:
80% • Stock in Country
markets
70% • Committed new
60% applicants in urban
markets, particularly
50% London
40% But still exceptional activity in
the context of Lockdown III
30%
Week1 Week2 Week3
Source: Savills 37Part 3: What’s next?
38Thank you © Savills 2021
Q&A
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