Buy-to-let landlords across the UK can expect rental demand to continue to outpace supply, spurred on by a surge in graduating students.
Although rental prices have now stabilised from the double-digit growth the market had been experiencing over the past couple of years – growth which most analysts deemed “unsustainable” – it seems that this has not coincided with falling rental demand.
Research from Rightmove recently revealed that each property to let is receiving an average of 17 tenant enquiries, while Zoopla’s analysis in June found there were an average of 15 households competing for each rental home. While this is down slightly from last year, it remains well above the long-term average.
The levelling off in rental prices is therefore more likely linked to wage growth, according to a new report from Savills, which states that the market is “returning to its core principles” – with “locations with good transport links, strong connections to employment hubs and homes priced in line with local incomes” continuing to see the strongest rental sectors.
Property investors and landlords focusing on these key elements can therefore expect to see ongoing rental demand for their properties, which research from Benham and Reeves shows is also key to achieving the best rental yields and the strongest capital appreciation.
Graduate numbers influencing rental demand
As the Savills report – which focuses on the build to rent sector within the rental market – points out, UK rental demand is “here to stay”, and there is an important factor influencing this.
Undergraduate and postgraduate student numbers have been on the rise, with a 4% increase in the number of students studying at higher education institutions in the 2021/2022 academic year, to 2.86 million.
Savills notes that there was a “steep rise” in student numbers in 2019, and research predicts there will be 4.7 million graduates between 2023/2024 and 2026/2027, assuming a 10% dropout rate. These graduates make up a significant part of the UK rental market, adding to the already growing rental demand.
And it is the UK’s core cities with the highest graduate retention rates that are likely to see the biggest swell in rental demand. Savills points out that London, Manchester and Glasgow in particular can expect to see a surge in tenants, with their graduate retention rates being 41%, 50% and 54% respectively.
Alongside Manchester, large numbers of graduates also gravitate towards the UK’s other regional cities of Birmingham, Liverpool, Sheffield and Leeds, thanks to the strong job prospects offered by these cities.
How build-to-rent trends fit into the wider market
Unlike traditional buy-to-let, which can be almost any residential property type that is rented out to tenants, build-to-rent is a niche part of the rental market that involves purpose-build rented accommodation in areas of high rental demand.
It can include single-family housing or multi-family, which tends to be a block of flats or self-contained properties that make use of some shared facilities, such as a concierge service, shared indoor or outdoor social spaces, and sometimes additional facilities like a gym.
Build-to-rent targets tenants who want their rental property to fit in with their lifestyle, offering additional amenities and facilities, as well as a sense of community, which makes it a more popular option for those looking for a long-term option without becoming a homeowner.
Thanks to the extremely high rental demand in the UK in recent years, the sector has multiplied quickly as a way of filling the gap. In the second quarter of 2024, Savills saw a jump in investment activity into build-to-rent, to almost £1.2bn – the second highest level of investment from any Q2 on record.
There are now more than 115,000 completed build-to-rent homes in the UK, which is 24% higher than in Q2 2023, and there are 45,400 homes under construction and 100,700 in the planning pipeline.
The huge level of interest from institutional investors in this property type reflects the expectation that tenant numbers and rental demand are expected to continue to surpass the number of homes available, keeping the UK rental market at the forefront for investors seeking long-term returns.
