UK rents continue to climb, led by the big cities

UK average rents for new tenancies rose to a new record of £1,172 in the regions and £2,480 in London according to Rightmove's latest Rental Tracker.

The property portal's report adds to a slew of statistics all saying the same thing. Average rents are 10% or more higher than they were a year ago.

London leads the way, with a 17% increase taking the average rent to £3,010 in the inner city and £2,098 in the outer boroughs. Beyond the capital, the North West saw the highest rise at 12.2%. Only the South East, East of England and the South West recorded less than 10%.

The statistics are based upon the price of new tenancies. Around 25% of tenancies change each year and these are the ones affected. The Office of National Statistics reports that renewing tenancies have seen more modest increases of 3.8%.

Big cities showing the highest rises

As the race for space continues to unwind, the large cities all recorded greater rental increases than their surrounding regions according to Zoopla.

London was out in front with a gain of 17%, followed by Manchester (15.6%), Birmingham (12.3%), Glasgow (14.1%}, Bristol (12.9%) and Sheffield (12.4%). All of Zoopla's 'top twenty' cities showed increases higher than wage inflation.

Supply / demand imbalance continues

The number of enquiries per estate agency branch are currently running at 46% above the five year average. The stock of homes available for rent, however, is 38% below the five year average, resulting in the rental price inflation over the last twelve months.

The UK's rental market has had a growing mismatch for a number of years. The overall stock of rental properties has been steady since 2016 at around 5.5 million, with those leaving the market balanced by new entrants and growing portfolios. However, an expanding population and changing demographics have seen demand steadily increase.

More recently, higher property prices and rising interest rates have seen renters remaining in their homes for longer, reducing the supply that would result from normal turnover.

Outlook

As with the sales market, it may be that affordability puts a brake on the rate of rent increases.

There is a strong relationship between rental prices and wage inflation. As a proportion of average take-home pay rents have been steady at around 32% to 33% for over a decade. The recent 10% plus rise has seen that proportion rise to 35%, A further 12% rent inflation would mean an uplift to 37%. This is considered unsustainable.

Affordability constraints and a slight slowdown in the rate of growth in the last quarter of 2022 suggest that rent increases are starting to moderate. Industry commentators suggest that they are likely to rise by 4% to 5% in 2023.