Bouncing Back – the opportunity for landlords in London

There was a lot of speculation during the pandemic about how this global and unprecedented experience would shape the UK rental market, with concerns focusing particularly on London.

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Barry Searle | Managing Director of Property at Castle Trust Bank
26th September 2022
Barry Castle Trust 728
"Before our idea of ‘normal’ was shaken by Covid-19, the capital sat pretty as an ideal market for those landlords lucky or savvy enough to get themselves a property"

Before our idea of ‘normal’ was shaken by Covid-19, the capital sat pretty as an ideal market for those landlords lucky or savvy enough to get themselves a property – demand could never conceivably falter, surely, so rents could creep higher and higher, as tenants fought tooth and nail to snap up properties as soon as they came on the market.

The global pandemic taught us the truth in the saying, ‘never say never’. A number of trends came together to suddenly make London a much less desirable prospect. Remote working became a reality for vast swathes of the office-based workforce, who previously had little choice but to live in easy distance from the city centre. Meanwhile, we became acutely aware of the importance of space, both indoor and outdoor – a luxury not afforded to many London renters.

Renters and homeowners alike saw greener grass – both literally and figuratively – outside the city, leaving pundits to wonder about the long-term ramifications.

In October 2020, SpareRoom’s quarterly index reported a price fall of as much as 34% for shared accommodation rent in some areas of London, with an overall yearly drop of 7% across the capital. Meanwhile, Benham and Reeves’ research suggests that between 2019 and 2020, the average London rent fell by 3.4%.

Further confirming this trend, rental prices outside of the capital saw little change during the pandemic, suggesting that demand had fundamentally shifted. Many wondered what this might mean for the future, in some cases prophesying the demise of London in some form or another.

Bouncing back

Nothing is ever quite so simple, however, and as Covid-19 restrictions eased, people started to flock back to London.

There are many reasons for this, even as working from home continued. The social and leisure benefits were a draw, once the bustling cultural hub returned, while many workplaces started luring their people back to the office. In addition, while many who left during lockdown chose to stay away, the next generation – willing to sacrifice space for the benefits of the city – was quick to take the opportunity to move in.

Across England, driven in part by the surge in London’s prices, median monthly rental costs hit the highest point on record in 2022, according to the Office for National Statistics (ONS). SpareRoom’s index, meanwhile, found a 15% yearly rise in London’s shared accommodation rents in August 2022, while Savills reported a 13.5% increase in the prime central market.

Falling short

Despite conjecture that the stamp duty holiday and the chance for lockdown savings might lead many to get onto the housing ladder, demand for rental properties has not waned in the UK, and although renters’ appetites in London may have faltered at one point, the resilience of this market’s appeal is clear.

However, this is only the start of the complications facing renters in the UK, which are particularly acute in the capital. According to research by Propertymark, the number of properties within the rental market reduced by 49% between March 2019 and March 2022.

Propertymark found that 94% of landlords who removed their property from the rental market did so in order to sell, with less than half of these properties then returning to the PRS.

New life

Of course, there are reasons why landlords are leaving the market. Increased taxation and regulation, for example, have made this market less about ‘easy money’ and more a full-time job. Nevertheless, for the committed individual, this is still a lucrative area of investment – the level of demand alone should prove that.

Whether in London during its spectacular resurgence, or one of the up-and-coming areas seeing a growth spurt post-Covid resurgence, landlords should be considering how to use the current demand dynamic to their advantage.

In the capital, where stock levels are in crisis, now might be the time to take a look at refurbishing large single-occupancy properties into shared accommodation, a market that is growing in popularity by the day. Equally, it might be prudent to consider investing in those properties that are currently uninhabitable, turning them around in order to inject much needed new life into a market in dire need of fresh stock.

While refurbishing a building can be a substantial investment, particularly in London, skyrocketing demand and high rental prices could make for incredible returns for those landlords ready and willing to make the most of the current environment.

As the UK faces a cost-of-living crisis, it is more important than ever to ensure that it has a PRS that is well stocked and ready to support a nation of renters. The savvy landlord, working with an experienced lender, would do well to be at the forefront of this movement.

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