Savills released its Mainstream Rental Forecasts report on 19 February, which said that the unique combination of factors, like the pandemic and related lockdowns, have disrupted the relationship between supply and demand, causing rental falls in some city-centre markets, while supporting the market for larger properties in other locations.

The firm reported: ‘As the vaccination programme is rolled out, we expect the market to progressively normalise; reversing some of the Covid-specific trends seen in 2020. In time, we expect rental growth to become primarily dictated by growth in incomes, much as it has done in the past. But, given the prospects for the wider economy, we expect a period when the rental market remains price-sensitive to be followed by a burst of stronger rental growth, which we have pencilled in for 2022.’

National divergence
According to the report, the impact of the pandemic on rental values has been most acute in city centre markets. As a result, a number of these markets have seen rental falls during the year, with London, for example, down -6.1% over the 12 months to November. In contrast, rents have increased by 2.8% on average across the rest of the country in the same period.

This average disguises the fact that some of the other major cities have also seen rental values fall. So while smaller cities, towns and suburban areas have seen continued rental growth, in Birmingham, Manchester and Edinburgh, rental values are down -3.4, -1.4% and -2.0%, respectively.

‘These falls may not come entirely as a surprise. The past few months have seen numerous headlines on households escaping city centres during lockdowns for large homes and green space in less urban areas. This behavioural shift goes some way to explaining why suburban and rural areas have seen growth at the expense of the major cities. This is only part of the picture, however. We can also explain much of the trend by looking at the amount of rental supply.’