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Demand outstrips supply in the commercial lettings sector

The lettings market is gradually recovering after the problems caused by the pandemic, but a survey shows demand will outstrip supply as corporate tenants and university students return to the market.

It is anticipated that the re-balancing between supply and demand will only come later this year at the earliest, according to the research.

Students and corporate tenants account for a large part of the demand, which has grown over the last 12 months, as offices and universities have gradually reopened after months of lockdown.

While demand has grown, supply has been more erratic over the same period. It surged at the start of last year as properties that would otherwise be used for short-lets and staycations moved onto the long-let market.

According to the survey by global property consultancy Knight Frank, as the UK economy opened up again, prospective tenants were then involved in a so-called sprint for stock.

There was a big rise in the number of corporate relocation enquiries, up to five times higher in the final quarter of last year, compared to the second quarter of 2020. This will continue to rise as spring approaches, says the survey.

The corporate enquiries come from companies of all sizes looking to relocate staff to the UK across a range of sectors including finance, tech and energy.

Meanwhile, the number of market valuation appraisals was only 38 per cent higher. Appraisals take place when prospective landlords value their property for the rental market and act as a leading indicator of supply.

The survey anticipates that there will be a steadier flow of students looking for rental properties in the early months of 2022 than in previous years, which will accentuate the supply and demand imbalance.

This is because universities have staggered the return of face-to-face learning. As a result, any students who could not find a property in time for September and used temporary accommodation, are actively looking again.

“Everything points towards a scramble for stock this spring,” said Tom Bill, head of UK residential research at Knight Frank. “Any re-balancing between supply and demand in the lettings market will only come later this year at the earliest.”

Rents are likely to keep rising strongly as a result. Average rents rose 2.9 per cent in prime central London last year and we forecast higher growth in 2022. In prime outer London, rents increased by 3.7 per cent in 2021.

Strong rental value growth may tempt some landlords back into the market, which would help redress the balance.

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