In the upcoming year, property consultancy JLL forecasts a continued upswing in the rental market. This projection is attributed to a shortage of new rental stock combined with a challenging interest rate environment. The consequence of this market dynamic is expected to result in rental prices outpacing wage growth, with a notable increase of 5.0% anticipated across the UK in 2024.
The scarcity of new rental properties is likely to create a heightened demand-supply imbalance, exerting upward pressure on rental rates. This, coupled with the prevailing economic conditions, underscores the forecasted trend of robust growth in the rental market. As prospective tenants contend with limited options and increased competition for available properties, landlords may find themselves in a favorable position, enjoying the potential for enhanced rental returns in the coming year.
In the backdrop of a notable 6.0% average increase in UK rents this year, Greater London surpassed the national trend with a robust 7.0% surge. This upward trajectory in rental costs indicates an ongoing trend of growing demand for housing. However, this surge is not isolated, as the real estate consultancy JLL points to a broader issue – a significant undersupply of homes in the UK.
Since the implementation of housing targets in the mid-2000s, the cumulative shortfall has reached an alarming 1.5 million homes. This persistent undersupply has created a challenging environment for prospective renters and buyers alike, contributing to the upward pressure on rental prices. As housing demand continues to outpace supply, the UK faces the consequences of a prolonged housing deficit.
Looking ahead, JLL’s projections indicate a deepening of this housing shortfall, with an anticipated cumulative deficit of 720,000 homes between 2023 and 2028. This foreseen imbalance between supply and demand sets the stage for further challenges in the housing market, potentially intensifying the strain on renters and highlighting the imperative for strategic interventions to address the housing crisis in the UK.
JLL’s comprehensive analysis of the property market in 2023 paints a nuanced picture, with an anticipated 6.0% average decline in prices compared to the figures from January of the same year. This downturn is more pronounced in London, where prices are expected to dip by 4.0%. The forecast hints at a challenging landscape for sellers in the short term, reflecting the current market dynamics.
As we peer into the future, the period spanning 2024 to 2028 brings a different narrative. JLL foresees a stabilization in prices in 2024, with modest single-digit annual declines projected until December 2024. However, a positive shift is on the horizon for 2025, fueled by the anticipation of decreasing fixed rates and a more certain market outlook. This suggests a potential turnaround in the property market, offering a glimmer of hope for sellers and investors.
In the realm of rentals, JLL anticipates a divergent trajectory. The scarcity of new rental properties combined with the challenges posed by the prevailing interest rate environment are poised to propel rental growth ahead of wage growth. Projections indicate a noteworthy 5.0% increase in rental prices across the UK in 2024. This forecast raises considerations for tenants who may face heightened rental costs, highlighting the evolving dynamics within the rental market in the coming year.
Marcus Dixon, Residential Research Director at JLL, offers a pragmatic view of the UK property market, highlighting its resilience in the face of uncertainties over the past year. Despite challenges, there has been a notable stability. Looking ahead, JLL’s forecast points to a potential bottoming out of prices in 2024, with expectations of single-digit annual declines, indicating a cautious but not catastrophic outlook.
However, Dixon underscores persistent challenges in the form of supply issues, projecting a cumulative shortfall of 720,000 homes between 2023 and 2028. This structural gap poses a significant hurdle to the market’s health. Dixon emphasizes the imperative of addressing these issues to not only fortify the supply side but also to mitigate the looming concerns related to housing affordability, signaling a need for strategic interventions for sustainable solutions.
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