The revival comes as offices start to reopen and rental affordability improves, particularly in London where it has hit a 10-year high.
A three-speed rental market is emerging across the country as renters start to return to city centres.
One year on since the housing market reopened, the pandemic-led drop-off in demand for rental homes in city centres is starting to bounce back as lockdown restrictions lift.
Major city centres
Demand for rental homes in central Edinburgh soared by 26% in the month after Easter, while it is 12% higher in central Leeds and 5% higher in central Manchester.
There is a seasonal element to this trend, but the rise in demand in these city centres has outpaced the growth in wider commuter zones over the same timescale.
Rental affordability has also improved in most cities, with rents in Manchester now accounting for 28% of a single earner’s income, down from 30% in March 2019.
The exception to this demand trend is Birmingham, where it has slowed since Easter – after a much stronger period through February and March across the wider city.
London
A similar pattern can be seen in central London, where rental demand is up 7% in the month since Easter.
Rental falls in London bottomed out in February, with overall rents in the capital now down 9.4% in the year to March.
Rents in London are now at their most affordable in 10 years. They account for 42% of a single earner’s income, down from 49% last March, and a peak of 53% in the last months of 2016.
Average rents in the City of London, Kensington and Chelsea, and Westminster, have fallen to their lowest levels in a decade, with Westminster rents running at £2,259 per month – down from £2,617 per month in February last year.
What’s the background?
The impact of the pandemic was felt most acutely in city centre rental markets, as people searched in less urban areas for homes with more space, both inside and out.
Central Edinburgh, Leeds, Manchester and London were at the forefront of the rental slowdown, as offices were shut and a hiatus in tourism took hold.
It drove a softening of rents in these city centres, which are still down on the year by 0.7% in Leeds, 1.1% in Manchester, 3.2% in Edinburgh and 9.9% in London.
However, the city centre downturn is starting to reverse as the economy opens up, workers start to return to offices, leisure activities restart, and renters return in search of a rental bargain.
Who could it mean for you?
Landlords
With rental demand building particularly in city centres as lockdown eases and offices start to reopen, if you have a rental property in one of these areas, you could be in a good position to let it.
Tenants
Affordability has improved in most cities, and many renters in the capital are looking to lock in the current affordability for as long as possible. Estate agents have reported an increased number of tenancies for longer than 12 months being agreed in London.
What’s the outlook?
Gráinne Gilmore, head of research at Zoopla, said: “Demand will continue to rise in city centres as offices start to reopen and this, coupled with increased affordability levels in many cases, will start to counter the negative pressure on rents seen over the last 12 months.
“In London, where rents are down 9.4% on the year, a modest reversal in rental declines has begun, but it will be a slow build back to pre-pandemic levels in inner London. The recovery will be uneven and we expect new or recently refurbished properties to attract higher levels of demand in the second half of the year.”
Top three takeaways
- Rental demand is bouncing back in city centres as lockdown restrictions are lifted and offices start to reopen
- It’s led to a three-speed rental market emerging: major city centres, London, and wider commuter zones and beyond
- In central London, rents in several boroughs have fallen to their lowest level for a decade, tempting tenants back