With the curtain about to fall for 2023, it’s time for London property owners and landlords to take a look at the year that’s about to end to prepare for the coming year.
The UK rental property market is influenced by several factors - the economy, movement of the population, property laws, infrastructure developments, etc. Understanding the current position of the market would allow landlords and multi-property owners to determine its growth trajectory.
This knowledge provides insight into how the rental market will behave in the near future. As a multi-property owner, you need this insight to make well-informed decisions that will position your portfolio to achieve maximum growth in the coming year.
In this article, you’ll get an overview of the main issues that shaped the rental market in 2023 as well as the opportunities in 2024 that you can look forward to. You’ll also get a tip on how you can improve your rental income potential next year - without feeling stressed about it.
Main Issues That Shaped the UK Rental Market in 2023
Overall, the UK property market has struggled throughout 2023. A combination of the inflation rate, high interest rates and the effects of the pandemic pushed housing prices higher than ever. As a result, more people were forced to delay home ownership because they couldn’t afford to buy a home.
What does this mean for the UK rental market? It means more people are looking for rental properties in the meantime. Does this mean landlords enjoyed maximum rental income in 2023?
It’s not an easy assumption to make.
To get a better understanding of the UK rental market, take a look at the main issues that shaped it.
The Low Supply and High Demand
The 2021 Census recorded that 30% of London’s households lived in privately rented homes. In the same data, it’s revealed that 29% of London properties are registered as private rentals, putting it higher than mortgaged properties (27%). Despite this, there’s still a shortage of supply because the population is growing faster than the housing stock. From 2000 to 2020, the population growth in London was recorded at 23% while the housing stock only grew by 18%.
The same data can be seen in the report released by the Royal Institution of Chartered Surveyors (RICS). According to the RICS, the demand for rental properties grew (+43). Part of the demand growth can be attributed to the unaffordability of properties for sale which led more people to delay plans for homeownership and be tenants instead. It’s also caused by the growing number of international students and travellers.
The RICS also revealed that listings went down (-24). This indicates a lack of rental properties to meet the growing demand.
Although there are plans from the government to build more properties for London residents, the development is still being outpaced by the growing population. Other plans by the city government to deal with this issue include the delivery of affordable homes, fairer regulations for renters and programs targeting homeless individuals.
The Renter’s Reform Bill
The Renter’s Reform Bill is another issue that’s shaping the London rental landscape in 2023. This bill was passed to provide better deals for renters and to protect them from “no-fault” evictions.
Although it was first mentioned in 2019, it was only introduced during the parliamentary session in 2022-23. While it gave renters more rights in their letting contract, its ultimate goal is to provide a fairer rental market for both landlords and tenants.
This led to a simpler structure for London tenancies and in reality, this may benefit honest landlords and multi-property owners in the long run. Despite the abolishment of the no-fault eviction, this bill aims to strengthen how landlords can repossess their properties.
This bill will also provide multi-property owners with a portal that will guide them in understanding their legal obligations and compliance responsibilities.
As of October 2023, this bill has just gone through the second reading where it’s revealed that some provisions may have to be delayed because of implementation issues (e.g. abolishment of the no-fault eviction, etc).
Moving forward, landlords and multi-property owners should keep an eye on this bill as it will affect future lease agreements.
Increasing Rental Prices
Given the issues with the rental housing supply and demand, it’s not surprising that rental prices will soar over time. The Office for National Statistics shared the following rental price growth for the period of October 2022 to 2023.
- UK: 6.1%
- England: 6.0%
- Wales: 6.9%
- Scotland: 6.2%
In England, London experienced the highest change at 6.8% while the North East area had 4.7% growth.
Even luxury property rental prices have gone up as more wealthy individuals choose to rent than buy luxury homes - with weekly rental prices for prime property ranging between £5,000 and £30,000. It has driven the value of the Prime Central London area higher by almost 30% compared to pre-pandemic levels.
Although supply and demand have a huge effect on rental prices, it’s not the only factor to consider. The higher interest rates affected Buy-to-Let rates and it’s forcing landlords to increase their rental prices to compensate.
The Changing Tenant Preferences
The post-pandemic preferences of tenants influenced the specific demands of tenants when it came to choosing a new home - three of which stand out the most.
First is flexible living. After getting a taste of what it’s like to work outside of the typical office space, people have come to love the freedom that remote work brings. If given a choice, UK workers would prefer a digital nomad lifestyle where they can mix work with travel plans.
In line with this preference for flexible living is the need to have comfortable home office spaces. In 2023, Bloomberg Intelligence revealed that 96% of office workers in central London are allowed to work from home. This means providing a space for work, whether it’s in the living room, bedroom or kitchen area. It’s no longer an option but a necessity for a lot of tenants.
Finally, the call for sustainable living is still something that 55% of UK residents are taking seriously. They’ve admitted that they try to choose sustainable options over others when they can, like minimising the use of energy. With local regulations imposing strict rules when it comes to energy efficiency, it’s time for landlords to take sustainability more seriously when furnishing properties for letting.
Looking Forward to 2024
With all the issues shaping the rental market in London, what can landlords and multi-property owners do to benefit from it?
There are a couple of things that you should do to position your portfolio to grow in 2024.
- Identify high-growth areas to invest in. Research infrastructure plans and commercial developments in 2024. Wherever the government or private investors are building, these are bound to be high-growth areas. More people would want to live here and look for rental spaces.
- Focus on flexible letting to meet diverse tenant preferences. This gives your portfolio adaptability so you can attract a wider tenant market. It also optimises your property to benefit from the ever-evolving changes in the rental market.
- Stay updated on rental laws and regulations. To be specific, keep an eye on the Renter’s Reform Bill so you can adjust your lease agreements and contracts accordingly. Include environmental rules as well to ensure your property stays sustainable and eco-friendly.
- Use technology to maximise rental income and occupancy rates. Equip your property with energy-efficient equipment and smart technology. You can also look for a proptech platform that can help you manage your multiple properties and monitor every tenant with ease. Use data-driven strategies to set competitive rental prices and switch to the right letting method in response to the evolving needs of the market.
- Partner with a reputable property management company. Look for a company that specialises in flexible letting and multi-property portfolios. They can help market and maintain your property while achieving legal compliance and providing 24/7 tenant relationship management on your behalf.
Work with Property Management Experts
2023 was an eventful year for the rental market. With the low supply and high demand, new laws, increasing rental prices and diverse tenant preferences, property management is as challenging as ever. Landlords and multi-property owners should be proactive in using the events of 2023 to make plans for their portfolio’s growth in 2024.
Amidst all the changes in the rental property market, one thing is for certain - working with property management experts will make things easier and stress-free. Finding a partner to collaborate with in managing your multiple properties will allow you to optimise your rental income and explore opportunities that can grow your portfolio.
If you’d like to start your 2024 with the right strategies for your portfolio, get in touch with our property experts. We’d love to discuss your plans and help you reach your goals.
