Graduate Rental Demand: A Persistent Trend for UK Landlords
Buy-to-let landlords across the UK can anticipate a continued high demand for rental properties, driven significantly by graduate rental demand. The rapid rental price increases of the past few years have stabilised. Despite this change, which analysts predicted due to the unsustainable nature of previous growth, rental demand has not decreased.
Current Market Trends
Recent research from Rightmove indicates that each rental property receives an average of 17 tenant enquiries. Similarly, Zoopla’s June analysis found that about 15 households compete for each rental home. Although this is a slight reduction from last year, it remains substantially higher than the long-term average.
Factors Influencing Rental Prices
The stabilisation of rental prices is likely linked to wage growth, according to a new report from Savills. The report suggests that the market is “returning to its core principles,” where properties in locations with good transport links, strong employment connections, and prices aligned with local incomes continue to experience the strongest rental sectors.
Graduate Rental Demand: Strategic Investment for Landlords
Landlords and property investors who focus on these key factors can expect sustained rental demand. Research from Benham and Reeves highlights that properties located in these prime areas not only attract tenants but also offer the best rental yields and strong capital appreciation.
The Role of Graduates in Rental Demand
The Savills report, which specifically examines the build-to-rent sector, underscores the enduring nature of UK rental demand, with graduate numbers playing a crucial role. Undergraduate and postgraduate student numbers have been increasing, with a 4% rise in the 2021/2022 academic year, totalling 2.86 million students.
Graduate Retention and Regional Impact
Savills notes a significant increase in student numbers starting in 2019, with projections indicating 4.7 million graduates between 2023/2024 and 2026/2027, assuming a 10% dropout rate. These graduates represent a substantial segment of the UK rental market, bolstering the already rising rental demand.
Graduate Rental Demand: Key Cities for Graduate Retention
UK cities with high graduate retention rates are likely to see the greatest increase in rental demand. London, Manchester, and Glasgow are expected to witness a surge in tenants, with graduate retention rates of 41%, 50%, and 54% respectively. Besides Manchester, cities like Birmingham, Liverpool, Sheffield, and Leeds also attract many graduates due to robust job opportunities.
Build-to-Rent: A Growing Sector
Unlike traditional buy-to-let properties, which include various residential types rented out to tenants, build-to-rent targets purpose-built accommodation. This sector focuses on high-demand areas for rental properties. This sector includes both single-family housing and multi-family units. These properties are often equipped with shared amenities like concierge services, social spaces, and sometimes gyms.
Graduate Rental Demand: The Appeal of Build-to-Rent
Additionally, build-to-rent properties cater to tenants seeking a lifestyle-oriented rental experience. Moreover, they provide additional facilities and a sense of community, making them an attractive long-term option for those not ready to buy a home.
Investment Surge in Build-to-Rent
Due to the high rental demand in recent years, the build-to-rent sector has expanded rapidly to meet this need. In the second quarter of 2024, Savills recorded nearly £1.2bn in investment activity into build-to-rent – the second-highest level of investment for any Q2 on record.
Current and Future Developments
The UK now boasts over 115,000 completed build-to-rent homes, a 24% increase from Q2 2023. Additionally, there are 45,400 homes under construction and 100,700 in the planning stages.
Institutional Interest in Build-to-Rent
The substantial interest from institutional investors in build-to-rent properties highlights the expectation that tenant numbers and rental demand will continue to exceed the number of available homes. This keeps the UK rental market attractive for investors seeking long-term returns.
Conclusion: Graduate Rental Demand
The UK rental market is poised for continued high demand, driven by increasing numbers of graduates and stabilising rental prices linked to wage growth. Landlords and property investors can make strategic investments in key areas. Moreover, by focusing on lifestyle-oriented build-to-rent properties, they can look forward to sustained interest and robust returns in the rental sector.
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