Tenant demand in the private rented sector has surged to an unprecedented all-time high during the first quarter of 2023, according to our latest research. We surveyed nearly 700 buy-to-let landlords, asking them to gauge tenant demand over the first three months of the year and 67% reported that they have experienced an increase – up from 65% for quarter four of 2022.

In recent years, the private rented sector has seen some significant changes that have been driven by evolving tenant preferences and market dynamics. As the demand for rental properties continues to grow, it’s essential that landlords keep abreast of the latest trends. Here, we summarise the key insights our research has uncovered, highlighting the current state of tenant demand.

Factors driving tenant demand

Renting has typically always provided tenants with greater flexibility, allowing them to relocate for work or personal reasons more easily. Many individuals, particularly young professionals, value the freedom that this brings and, therefore, this is one of the core underlying factors driving demand that rarely changes.

Another key influence on rental demand is the strength of the jobs market, and ONS data tell us that this remains fairly robust. Whereas many jobs are being filled by UK nationals, the economy is increasingly looking to immigration to fill positions and this is contributing to the boost in rental demand.

Growth in student numbers has also provided an uplift in migration, with overseas students studying in the UK growing significantly in recent years.

Whilst the level of tenant demand has increased, the supply of private rented homes has remained relatively static. Whilst new investment adds to the supply of rented housing, this is being offset by the disposal of rented homes from the private sector as landlords either reduce the size of their property portfolio or exit the market altogether.

Data from Zoopla’s latest rental market report illustrates how demand continues to outpace supply. Figures show rental demand is 51% above the five year average, whereas the stock of homes available for rent compared with the same five year average has reduced by 33%. One of the factors influencing this is the growing trend for longer tenancies.

Regional variations in tenant demand

Whereas landlords right across England and Wales have reported a general increase in tenant demand during the first quarter, regional disparities do exist, with certain areas experiencing higher levels of demand than others.

The East of England emerged as the region with the highest tenant demand, with nine out of ten landlords reporting an increase in demand for their rental properties.

On the other hand, the West Midlands witnessed the lowest levels of tenant demand, with 73% of landlords surveyed reporting an increase.

In the South West, a significant 94% of landlords stated that they were currently experiencing strong or very strong demand for their properties, reflecting a highly positive market trend.

Finally, over 90% of landlords in Wales reported positive levels of tenant demand.

How are landlords responding to rising tenant demand?

As tenant demand for rented property continues to grow, so too does the cost of rents. Among the near 700 landlord respondents from our survey, 85% reported that rents were currently on the rise in the areas in which they let property and over half (52%) say they plan on increasing rents across their own portfolio in the next six months, with the average amount of increase cited as 8.2%.

Our survey also delved into the most common reasons for landlords planning to increase rents and these included covering the rising costs for maintenance, repairs, insurance and other essential running costs. In an effort to stay competitive, 60% of landlords revealed that they plan to adjust their rental rates to align with the prevailing rates in their local market. Another significant factor influencing rent increases is the rise in mortgage finance costs, with 49% of landlords citing this as a reason for raising rents.

Commenting on these latest findings, our Mortgages Managing Director, Richard Rowntree said:

“The fact that we’ve seen another high in the proportion of landlords who have told us that they’ve experienced an increase in tenant demand reinforces what I’ve said previously; put simply, we need more private rented sector homes, not less. An important element of this is policy that strikes the right balance between driving up standards and providing tenants with protection while not acting as a barrier to investment.

“Failure to address this will further drive rental inflation and increase competition for rented homes at a time when affordable housing is as important as ever.”