Are rental indices showing consistent trends?

publication date: Mar 20, 2013
 | 
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books
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Are rental indices showing consistent trends? 

At Designs on Property, we analyse property market information from a consumer and supplier perspective. Our private rental sector update summarises latest rental reports and surveys over the last few months, including room rents. We then consider what trends are emerging both from studying the statistics but also talking to agents, landlords and tenants and discuss the implications this has for agents, legal companies, landlords, property investors and tenants.  
 
Key headlines this month include:-

Savills xx “As the number of households in the UK entering private renting continues apace, the
appeal of residential investment in the sector looks set to widen”
Homelet
“The average cost of renting a home is now £777 per month, which is 4.5% higher than
in January 2012. When comparing this month’s average rental amount with 
December
2012’s, tenants are paying an average of 0.6% less.”
Acadametrics/LSL BTL “Tenant finances recover as rental dip gives breathing space”
Belvoir Lettings “Rents steady and stable across the UK”

Overall monthly averages in rents can hide completely different trends across the region, so we look at the rental data at a regional level. 

Regional Rental Indices

In the regional indices chart above, we have now included the Valuation Office Agency’s rental figures for 2012 (1st Jan 12 – 31st Dec 12) as a comparison to LSLHomelet and Belvoir figures. In summary:-

 

  • In Scotland, Belvoir show a very slight fall year on year at -0.6%. Homelet show a slightly lower average monthly rent of £582 for January 13.
  • The Welsh data from LSL suggests a 1.5% increase year on year at £559, with Homelet and Belvoir recording rental averages of £570 and £644 for January respectively.
  • Both LSL and Belvoir have recorded a small rise in the year on year rents for the North West, at 2.5% and 1.1% respectively – again, this shows the market to have been fairly static over the past year.
  • Similarly, Yorkshire & The Humber shows a slight decrease of -0.6% by LSL compared to a very slight rise from Belvoir of 0.2%, again, indicating very little change in the market year on year.
  • Both LSL and Belvoir indices show a similar trend for the East Midlands, indicating a fairly static market versus this time last year.
  • This is also the case for the West Midlands, which shows very little year on year movement with LSL registering a slight fall of -0.3% against Belvoir’s 0.5% rise.
  • Rents in the South West recorded a small increase year on year according to Belvoir at 2.7%, with LSL showing a very slight drop of -0.2%.
  • East Anglia, according to LSL, has experienced a 2.8% rise in rents year on year with Belvoir registering a -0.9% decrease.
  • Belvoir has recorded the highest percentage rise of 5.3% year on year for the South East, with LSL registering a similar trend, but rents tracking slightly lower with a year on year increase of 3.5%.
  • In Greater London, the Belvoir data suggests a -2.1% fall year on year while LSL rents suggest a rise of 5.2% over January 2012.

Rental indices broadly report similar average rents and trends

Our regional chart, showing the different indices, and where possible trends suggest far more consistency than property price indices which vary widely both in average price and whether the market is moving up or down.

The biggest variation is in London where although the VOABelvoir and Homelet are pretty similar with a £1,320 average, LSL track 25% lower. This can easily be explained though through the enormous variation of rental prices across London. Just having one or two offices in an area where rents are £2,000 or more a month versus ones which are around the £1,300 average, can easily lower the average, as it appears to have done in LSL's case.

Overall, a trend in London of static to 5% changes in rents isn’t unbelievable and as such provides a good guide to what’s happening in this region.
In the main, the average variation between the highest and lowest rents is around 10%, which again, considering the variations in office locations, and therefore the properties included, this isn’t unexpected and certainly doesn’t mean the rental indices can’t be relied upon.

Anyone who is an agent, landlord or tenant is fully aware rents vary from one area to another and this doesn’t matter so much. What does matter is whether the trends of rents rising, being static or falling match.

In the main, the indices typically agree on regional trends.

The Valuation Office Agency average regional rents for 2012 do appear to be broadly in line with the BelvoirLSL and Homelet indices with the exception of the North East and North West. The VOA show a rental figure of £476 for the North East, which is around -12% less than Belvoir's January figure of £542, and -8.4% down on LSL's rental of £520. Similarly, in the North West, the VOA rental figure of £525 for 2012 is some -15.4% less than Belvoir's figure of £621, and -9.0% down on LSL's figure of £577.

The North East though is an extremely diverse area from a rental perspective and typically trends need to be looked at within a postcode. For example in Newcastle rents can be from a few hundred pounds a month to several thousand, even when properties are only a few miles apart. So, depending on where agents are based, this is the likely cause of the wider variations.

The Homelet rental indices for January 2013 is also very much in line with Belvoir and LSL, with the exception of the South West region that has an average rental price of £778, similar to Belvoir's which is around 3.6% above the Belvoir figure of £751 but 22% above LSL’s rental of £638!

With regards to trends, most of the indices track each other well. In the South East, Yorkshire and Humber, North West and East, East and West Midlands, Belvoir and LSL both suggest rents are either static or slightly moving forward. For the South West and East Anglia the difference in trend is around 3%, so not much from a statistical perspective.

The biggest difference is Greater London where Belvoir show a slight fall and LSL a 5% rise, but with the diverse property stock in the area, anything up to a 10% difference should be still considered robust results.

From a landlord and tenant perspective, it is always essential that rental trends are sought at a local postcode level from a lettings specialist such as Belvoir. From a lettings agent perspective it is good to track your average rents and trends against the regional ones. As turnover is based on a percentage commission of rent, if you want to expand or increase turnover, knowing which areas offer higher rental income can help to improve your future business if you target accordingly.


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