Over the last 3 weeks, the members of Team Umega have only seen each other on video calls. It’s been a period of seismic shifts across the letting sector but now things are calming down, we are a bit clearer on how the market is going to behave up to and after COVID-19 restrictions are lifted.
Let’s start with what we’ve observed so far.
Tenancies are holding up under pressure
It has been a turbulent 3 weeks. There is no doubt that tenancies that were running smoothly before mid-March, when the C-19 pandemic started to take hold in the UK, have come under pressure. This is largely down to two reasons: firstly, many tenants have had a sudden drop in their regular income and secondly, many tenants no longer need to live in the property they occupied before C-19 hit. The most prevalent example of this can be seen in student tenancies. Once the university closures were announced, some student tenants served their 28-day notice and went back home straight away.
From Umega’s perspective, the majority of our tenancies are continuing “unaltered”, albeit there is a huge amount of work being done to support the tenants and landlords involved.
- 10% of our tenancies have come to an end and these properties will be going back onto the market.
- 5% of existing tenancies are continuing with a temporary rent reduction and
- 3% are in unexpected rent arrears.
It is important to say that we expect many more tenancies to come under pressure or come to an end as the C-19 restrictions continue, but at a slower rate than we’ve experienced over the last 3 weeks. This could take the form of tenancies coming to an end, or tenants struggling to pay their rent.
There will be many more properties available on the market
By the early summer, we expect the number of vacant properties on the rental market to be around 4 times higher than what we would normally see. Again, we see multiple factors behind this forecast. We expect there to be a higher number than normal of existing tenancies coming to an end, which drives up the supply of vacant properties to the market. There will be a large number of previous AirBnB holiday-let properties coming over to the long-term market as tourism in Edinburgh sees a huge drop off for the rest of the year. We also expect to see the current slow-down in new tenancies to continue while the current restrictions are in place. By combining these two effects it’s clear the volume of properties on the available rental market is going to increase significantly. Naturally this will mean longer void periods for properties on the market (new tenancies will be harder to come by) and reduced rent levels on new tenancies. We expect this to be the case until the volume of properties on the market drops significantly.
The medium-term outlook is positive
We are expecting an announcement from the Government soon about whether the initial three-week lockdown period will be extended; at Umega we fully expect these restrictions to last until the early summer. We do expect the market to recover relatively quickly once the restrictions are relaxed. In that sense we see a close relationship between the social restrictions and how the rental market will behave.
Working with our landlords and tenants
We know how significant it is to keep existing tenancies going wherever possible, to help tenants keep their homes and keep vacant properties out of a very crowded “available now” market. We also know how important it is to work with new prospective tenants at this time to agree good tenancies where possible. Despite the current restrictions, we are continuing to receive a handful of enquiries each week (approximately 10% of our pre-C-19 tenant enquiries) and we are monitoring this on a daily basis so that we are primed and ready to respond when the market starts moving faster.