The calm before the storm
The local economy is going like a steam train. Unemployment is minimal, the rental market has grown and the sales market has been booming. Yet the country’s overdraft is growing and many public sector services are straining. So we wait and wonder what cocktail of coalition and compromise awaits us in May. With complexity ahead, we strive for simplicity in this Quarterly Report on the Oxfordshire Rental Market for January, February and March 2015 (Quarter 1).
The average rent is up 3.54% (Figure 1): Historically our average rent (1) tracks inflation and in the past year it has increased slightly more than RPI or CPI. This is a symptom of a diversified, productive local business ecosystem. Our corporate relocation enquiries are increasing as companies bring talent into the county to fill roles rather than recruit locally amidst extremely low unemployment.
What applicants want: smaller, smarter properties: In Table 1 our letting experts in our offices report on what was letting most effectively. Subtle differences exist from one market to the next, but the overwhelming headline is that people rent on value not price. Successful landlords understand the difference between these two factors and invest to make their rental properties compete effectively with their peer group.
12 month demand in Central Oxford Demand patterns have changed in OX1: The summer peak / winter calm is being evened out and a strong rental product will succeed throughout 12 months of the year. The proof point is our successful letting of 27 new build units near Oxford station in Quarter 1. With good room sizes and striking furnishing, a full 97% of asking rents were achieved, examples being £1,350(2) for a 1 bedroom apartment and £1,595 for 2 bedrooms (Photo 1). The quality of tenant is high with people happy to adapt their preferred location when presented with an attractive apartment.
Renewals creep up as sales calm down slightly: A ‘renewal’ is where a tenant extends their tenancy. Renewal levels offer a window into human behaviour, as Figure 2 shows, renewal levels dipped in 2013 and 2014 as we saw good tenants leave the rental sector to become owner occupiers for the first time. In 2015 renewals have increased slightly – anecdotally it seems that these first time buyers are less active in 2015 due to lower available sales stock and higher sales prices.
Furnishing matters and unfurnishing matters: It can be irritating to unfurnish a large rental property – “Where do I store the bl**dy furniture?” being a common response. Yet sometimes it is vital. We spent most of Quarter 1 trying to persuade a client to unfurnish their lovely 4 bedroom stone lodge. No joy. The result: three months’ lost rent and a trail of disappointed applicants with their own furniture. A happier story occurred with Photo 2 and Photo 3. The former was marketed at £4,995 unfurnished and within a week we let it to an incoming family. Likewise with Photo 3 – it let on the first viewing to tenants retiring to Oxfordshire with, you guessed it, all their furniture. Bottom line: we let around 90% of houses over £2,000 unfurnished.
A couple of graphs to wake you up: It is difficult to pretend to be impartial, as Labour’s plans for compulsory 3 year tenancies, rent caps and banning applicant fees would, in our view, set the rental industry back a couple of decades in terms of service levels and property standards. But putting that to one side, here are 2 interesting graphs to end with, courtesy of the Spectator magazine.
Figure 3 shows the net addition of jobs, arguably the Coalition’s main achievement. Normally such a growth in employment would drive positive GDP growth and help a country reduce its overdraft. Hmm, not if you look at Figure 4 which is a sobering view of the financial challenge ahead. The economic choice seems to be ‘tackle the country’s overdraft sooner or later’ and you will have your own view on this. The contraction of the public sector, rightly or wrongly, manifests itself via low wage increases among the major Oxfordshire public
sector employers, which will start to affect the rental market if it continues for the next term of Government.
Finally, Easter has already kicked off the family house season and we are gearing up for the busiest months of the season. We will report back at the end of Quarter 2…