The latest research from Knight Frank has forecast that £75 billion of investment will be committed to the professionally-managed Private Rented Sector (PRS) by 2025.
The Multihousing report reveals the key trends that are set to dominate the private rented sector along with insights from tenants and investors.
Over 10,000 people across the UK responded to the Tenant Survey, conducted for Knight Frank by YouGov. The report reflects the views of 5,000 people living in the private rented sector across the UK. For the first time, the survey also includes 5,000 homeowners, allowing the study to draw conclusions on the differences between homeowners and renters.
Some of the key findings include:
- Young professionals (aged 25-34) no longer make up the largest group living in the PRS, having been overtaken by 35 to 49-year-olds (but only very slightly). This age group is also expected to show the biggest growth in households in the PRS over the coming years, with difficulty in obtaining a mortgage deposit to buy a home remaining a hurdle
- Affordability remains the key priority for 61% of tenants when choosing a property. More than one in ten tenants said renting allowed them to live in an area they could not otherwise afford
- Location is the second biggest priority for tenants (23%) followed by the size of the property (10%)
- Lack of a mortgage deposit remains a key driver for renting, though this ranges from 71% of young families to just 41% of iGens (those aged under 25)
- On average, 69% of tenants still expect to be renting in three years’ time, rising to 93% for Baby Boomers (aged 65+)
- Tenant priorities are more focused on ‘internal’ factors – amenity within an apartment – than ‘external’ factors – such as local shops.
Knight Frank spoke with more than 25 of the largest funders and developers of purpose-built PRS and Retirement Housing to gain insight into how the market is set to develop:
- 38% of respondents said they wanted to engage in providing “cradle to grave” housing, i.e. student housing right through to Housing with Extra Care for older people.
- In five years’ time, 56% of investment will be outside London (up from current levels of 44%)
- The average net yield for professionally-managed PRS properties is expected to settle at around 3.9% in 2022
Nick Pleydell-Bouverie, Head of Residential Investment Agency at Knight Frank, commented, “We are seeing a significant number of individual private buy-to-let landlord exiting the market as the Government’s buy-to-let tax changes start to bite. Large-scale professional PRS landlords are well placed to absorb this, as well as satisfying some of the structural shortfall in our housing supply.
“A principal constraint on the delivery of housing is the estimated rate of sales for developers. The Institutional PRS market can significantly accelerate this through near immediate absorption. It is crucial that the UK Government resists further legislation and taxation and enables the PRS market to significantly contribute towards the UK housing challenge.”
Tim Hyatt, Head of Residential Lettings at Knight Frank, commented, “Once again, affordability has emerged as a key reason for people choosing to rent in order to live in an area where they would not be able to buy. However, average rents in Great Britain rose 1% in the 12 months to December as more landlords leave the sector and levels of stock decline. The tenant fee ban, which comes in into effect in June this year, may also result in some landlords increasing rents to offset any extra costs.”
View the report here.