What’s Happening With The London Rental Market?

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John Brady

John Brady

John is a property writer here at RWinvest. With a close eye on property market news and updates, John writes detailed and informative articles on a range of topics that are helpful for anybody looking to invest in UK property.

London has seen some instability and downward trends in its property market over the past two years. The COVID-19 pandemic, as one example, has seen people leaving the capital for the suburbs. 

This has caused property prices and rental yields to drop in comparison with the rest of the UK. These events have rocked London’s rental market, and investing in it would have been risky at the time. 

Recently, there have been several signs of growth in the London rental market, with record-breaking increases in rental prices across the city. 

In this guide, we’ll explain what happened to the London property market in the past 12 months, what we think will happen in the rest of 2022, and if investing in the London rental market is a good idea.

What Happened To London’s Rental Market In 2021?

  • The London rental market suffered as people moved out of the capital. It is estimated that up to 700,000 people moved out of London at this time.
  • This saw rental prices fall in the early months of the year. The Telegraph reported that in some areas of the city, prices fell by 22%.
  • There were fewer international tenants such as students, which impacted regions of London like the city centre and North-West London. 
  • As London recovered from the COVID-19 pandemic, more renters returned to the city, causing a rise in demand that could not be met. 
  • Towards the end of the year, rental prices began to rise due to the increasing demand. Savills found a quarterly growth of 2.9% in Q3 of 2021.

What’s Happening in 2022 to London’s Rental Market?

Compared to 2021, the London rental market has seen considerable growth as the rising demand for rental properties continued. The market has not been able to keep up with the influx of new renters to the city. 

Some areas of the city are seeing a demand for rooms more than double the supply, which indicates that renters are returning to London in large numbers. 

As the city returns to the office, the falling amount of available flats and rental properties has caused rental prices to rise at the fastest rate since 2008. According to the Telegraph, there have been some listings that have been inked within seven minutes of being listed.  

Rental prices have risen by rapid amounts in this time, with rental prices for flats increasing by 14.9% over the past year. This is the strongest annual growth since 1998. 

Some areas of London are performing better than others, with North and East London leading the way. They were among the worst affected areas of the London rental market in 2021 due to the high number of flats, so this recovery isn’t surprising. 

International tenant groups such as students and businesses returning to the city has seen areas like central London and North West London experience rapid growth.

What Will Happen in The Rest of 2022?

Our forecast for the London rental market in 2022 predicts that this rise will only increase, as it is unlikely that the demand will meet the supply in the coming months. 

Savills predicts that London rental prices will grow by 6.5%, with a five-year forecast of 22.2%. Landlords will be in a strong position due to the number of people looking to move to London for work and studies. 

With London’s population continuing to grow post-pandemic, there will be a rise in the number of tenants looking to rent. 

However, there is likely to be a limit on how much further the London rental market will grow in 2022. With the government set to introduce new legislature for landlords and London’s economy recovering at a slower rate, the growth we have seen will cool as the year goes on.

Should You Invest in The London Rental Market?

Although London has seen record growth in rental prices over the past year, it is worth remembering that investing in the London rental market comes at an increased upfront cost compared to the rest of the country. 

This means that although you will receive more in rent, it will cost you more to invest in the first place. Therefore your investment might not be as profitable as other areas of the UK. 

The lack of supply affecting the London property market means that it will be a challenge to find property worth investing in and that prices will rise as other investors will be looking to expand their portfolios. 

While the London rental market is certainly more attractive than it was a year ago, investors are still to be reminded that the growth we are experiencing right now is likely to hit a peak sooner rather than later. 

Therefore, investing in other areas of the UK is likely to be a better investment due to lower costs of investment, combined with rising rental fees across the rest of the country. 

Cities such as Manchester and Liverpool are generally seen as more attractive investment opportunities. Both have higher rental yields and are cheaper to invest in. Liverpool has seen rental yields as high as 10% in some areas of the city. 

Manchester is one of the UK’s fastest-growing property markets. Zoopla records an average property price of £233,577, under a third of London’s average price of £734,698. It also has incredibly high rental yields which average at 9.11% according to our research

If you would like to learn about the rental market in other areas of the UK, see our guide on the Best Places to Invest in UK Property in 2022

Alternatively, we have several exciting investment opportunities all across the UK which are currently available. Our team here at RWInvest will be happy to answer any questions you have.

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