Could apartments be booming as renters seek smaller homes?

The continuing shortage of rental housing is pushing the market higher in terms of prices and tenant demand, and apartments are proving to be a more attractive option than ever amid the energy crisis.

Two-bedroom apartments are increasingly the top property choice for tenants in the UK, according to the latest Zoopla rental market report for the third quarter of 2022, which revealed that demand for this type of property holds a 36% market share.

The data also revealed that rental costs for all property types rose 12.3% over the past 12 months, the largest annual increase reported to date and a sign that the lack of rental housing available by relative to the number of potential tenants continues to affect the market.

While the general cost of living crisis could encourage some tenants to seek smaller properties, causing a spike in interest in flats and flats as tenants seek cheaper rents than houses, the surge in Energy bills is also a factor, according to Zoopla.

The report notes that the gas needed to heat a purpose-built apartment is 40% less than that needed for a three-bedroom house, and this is something tenants across the country could increasingly consider – and something to buy -letting homeowners and real estate investors keep in mind.

Apartments in cities attract interest

One area that Zoopla’s report identifies as performing particularly strongly is city center apartments. It highlights the fact that urban areas have seen average rent growth of 10.5% over the past year on average, compared to 8.5% in rural markets, indicating stronger urban demand. .

The job market is a major driver of this ‘comeback’ to the city, especially as industries continue to recover from Covid, with the report adding: ‘Higher levels of new build supply concentrated around town centers are also becoming more attractive to tenants looking for smaller homes with lower running costs.

During 2021 and 2022, Zoopla discovered an upward trend towards more renters looking for one- and two-bedroom apartments, while those looking for two- and three-bedroom homes declined. The trend has been particularly apparent lately.

Although this may be partly due to the imbalance of supply and demand, it seems that costs are a major factor. New rental apartments come out on top when it comes to reducing operating costs.

The report adds: “A one-bed house requires less than half the gas needed for a 3-bed house, while D- and E-rated homes require 25% and 48% more gas, compared to a VS.”

Best value in the north

It’s no secret that the cost of living is generally cheaper in the North and Midlands than in London and the South East. However, salaries also tend to be lower away from the capital.

But Zoopla points out that when it comes to rent affordability – the level of rent paid relative to average household income – private renters in the North and Midlands report that they find rent easier to cover than those who live in the south.

Zoopla adds: “With our own data on rent affordability, we believe rents still have more room for above-average growth in the cheaper areas of the UK.”

From a real estate investment perspective, it is therefore essential not only to balance the cost of ownership against rental income, but also to take into account this increased demand from tenants and the future prospects for increased rents. and capital appreciation in a market that tenants generally find more affordable.

Looking to the future, Zoopla’s report predicts no major changes on the horizon. While rent growth may start to slow in the next quarter and into 2023, it does not foresee drastic declines as the supply-demand imbalance will continue to prevail.

BuyAssociation offers a range of property investment opportunities, including new build apartments across the North and Midlands. Contact us for more information.

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