RICS Residential Lettings Market Survey - July

Tuesday, August 21, 2012

Rents expected to continue rising

Key points

• Tenant demand grows and new instructions stabilise  
• Past rents and rental expectations continue to rise
• Rents expected to increase the most in London  

According to the latest RICS Residential Lettings Market Survey, average rents at the national level increased by 4.3% over the past year and are expected to increase by 2% and 3.9% over the next 6 and 12 months respectively. Surveyors estimate that average gross yields currently stand at 5.2%.

Rental increases have been driven by sustained - albeit modest - growth in demand and broadly stable supply. Indeed, the tenant demand net balance registered +4, a little down from +15 last time, but still indicative of positive growth.

Surveyors once again draw attention to demand coming from would-be buyers who are having to remain in rented accommodation as they struggle to access mortgage finance.

Meanwhile, new instructions to let more or less stabilised following 18 months of sustained increases; 2% more surveyors reported a fall in new instructions rather than a rise.  

At the regional level, rental growth over the past year was reported to have been the highest in the North East, with average rents growing by 6.9%. Rents also improved smartly in London and Scotland, where they increased by 5.9%.

Meanwhile, surveyors in Wales suggested that rental growth has been flat. In the coming 6 months, rents are expected to rise by 4.1% in London, and 3% in Scotland.

Interestingly, rents are expected to ease a little in the East. Looking 12 months out, London rent expectations are stretched even further; 7.8% growth is expected, while rents in both the West and East Midlands are forecast to rise firmly.

The divergence in yields at a regional level is stark, with 9.6% reported from Yorkshire and Humberside, while the yield is - somewhat unsurprisingly - low in London, where average yields were suggested to be 4.5%.

And further that "the upward march in rents continues to be underpinned by a shortage of good quality properties for tenants to move into. In the three months to July, the amount of new properties coming on to the market was little changed compared with the preceding period; a net balance of two percent more surveyors reporting falls in new instructions to market...meanwhile, demand continues to grow, albeit at a much slower pace than in recent quarters..."