Tenant Demand Rises to Nine Year High

1st March 2007

Tenant demand rose at the fastest pace for nine years, says RICS Lettings Survey published today (Wednesday 28 February 2007). The acceleration in demand occurred on the back of strengthening economic activity, buoyant employment conditions and sustained migration from EU accession countries.

30% more Chartered Surveyors reported a rise than a fall in tenant lettings, up from 21% in October 2006. This is the highest recorded rise in tenant demand since July 1998 when the figure was 41%.

Demand rose for both flats and houses, with the latter experiencing the biggest rise with 34% more Chartered Surveyors reporting a rise than a fall in demand for houses, up from 22% in October - the highest figure in the survey’s history. Rising household incomes are leading to increased rental demand for larger properties. Affordability conditions continue to prevent would-be buyers from purchasing a home.

New landlord instructions (an indicator of buy-to-let activity) showed a modest upturn. For the quarter to January, 10% more Chartered Surveyors reported a rise in landlord instructions compared to 6% in the previous quarter.

Higher investor activity reflects the pull of strongly rising house prices with interest rate rises yet to have a negative impact on landlord demand. However, strength in landlord construction is moderate compared to the boom years of 2002-2004 with investor activity capped by relatively low property yields.

Gross yields showed a second consecutive quarter of decline, with the pace of decline accelerating to the largest since July 2004. The fall reflects equal declines for both houses and flats across all locations. Surveyors reported a firm increase in rental levels but expectations of further growth were less than optimistic with a backlog of properties expected to prevent further increases.

RICS spokesperson Jeremy Leaf commented:
"The buy-to-let-market remains healthy with interest rate rises yet to bite, but there are few signs that the market is booming. Further interest rate rises will squeeze the position of would-be landlords, slowing investment as profit margins diminish.

"With house prices still rising, the rental market will remain a ‘property purgatory’ for many would-be-buyers unless accessibility and affordability conditions improve significantly. However, tenant demand will continue to rise as long as economic conditions remain strong."