Savills Projects 20% UK Rent Rises Over Next Five Years – Implications for London's Regeneration
The UK property market, particularly the rental sector, is on the cusp of a significant transformation. Property consultancy giant Savills has released compelling projections, forecasting an average UK rent rise of approximately 20% over the next five years. This substantial uplift presents both exciting opportunities and notable challenges for investors and property developers, especially those focused on the dynamic landscape of regeneration of the high street in London. As tenant demand continues to outpace supply, understanding the nuances of these forecasts is crucial for strategic decision-making and unlocking the potential within the capital's evolving property market.
This analysis will delve into Savills' projections, explore the driving factors, examine the specific implications for London, and highlight how these trends are shaping investment opportunities, particularly in the burgeoning Build-to-Rent (BTR) sector.
Understanding Savills' Projection: 20% Rent Rises Over the Next Five Years – What Investors Need to Know
Savills' headline forecast of a 20% average rental increase across the UK serves as a significant indicator of market pressures. While this is an aggregate figure, more detailed analysis from Savills points to a nationwide residential rent rise of approximately 17.6% across the UK over the next five years (roughly to 2028-2029). For London, the forecast is slightly more modest, with rents projected to increase by about 14.2% over the same period.
These figures, while substantial, come on the heels of already strong rental growth. Savills notes a 9.5% growth in UK rents for the calendar year 2023, following an 11.2% increase in 2022 – the highest on record according to Zoopla. An additional strong rental growth of 6.0% was predicted for 2024. These projections underscore a sustained period of upward rental pressure, demanding careful consideration from anyone involved in residential property investment.
The primary asset class underpinning these forecasts is the private rented residential sector (PRS). The timeline for these developments is critical, with an anticipated 'affordability ceiling' for UK rents potentially being reached around 2025. Despite this, Savills predicts that rental growth will continue to outstrip income growth over the next five years, further intensifying the focus on rental housing solutions.
The Driving Forces: Why Are Rents Set to Climb?
Several interconnected economic and market drivers underpin Savills' robust rental growth projections. The core issue remains a persistent imbalance between high tenant demand and constrained supply.
Elevated Tenant Demand: While demand may have slightly softened from the record highs seen in 2021-2022, it remains significantly elevated. Higher borrowing costs are also keeping many potential first-time buyers in the rental market for longer, further bolstering demand for new rental properties.
Constrained Supply: The availability of rental stock is exceptionally tight. Current rental listings per active letting branch are reported to be 16% below 2018-2019 levels. This scarcity means properties are letting, on average, 20% faster than in previous years.
Landlords Exiting the Sector: A notable trend contributing to supply reduction is the increasing number of private landlords selling their properties. This exodus is often attributed to rising operational costs, including higher mortgage interest rates on buy-to-let properties, and changes in regulation and taxation, which could accelerate future rent rises if not offset by new institutional investment.
The Need for New Homes: Looking further ahead, the UK faces a critical need for new rental homes. Projections suggest that up to 1 million new rental homes could be required by 2031 to meet demand, highlighting a significant housing supply challenge.
These supply and demand pressures are compounded by the fact that income growth, while expected, is not forecast to keep pace with rental growth. This growing disparity accentuates affordability issues, which Savills explicitly cautions could act as a brake on runaway rental inflation, particularly in already high-cost areas.
London's Unique Rental Landscape: Challenges and Regeneration Opportunities
For investors and developers targeting London's high street regeneration, Savills' forecasts present a nuanced picture. While the capital is projected to see a 14.2% rental increase over five years, it faces distinct challenges and opportunities.
Affordability Ceiling Already Impacting London:
The "affordability ceiling" – the point at which renters can no longer absorb further increases – appears to be impacting London more immediately than other UK regions. In 2023, rents in London were already consuming an average of 42.5% of income. Consequently, month-on-month rental growth in the capital has slowed, from 1.2% in 2022 to 0.6% in 2023, and is anticipated to remain lower than the UK average for the next 18 months. There's also a noted mismatch in London between landlord expectations for rental increases (often 5-10%) and what tenants feel they can afford (typically up to 5%).
Long-Term Optimism and Regeneration Hotspots:
Despite these immediate affordability pressures, Savills expects London's rental growth to show stronger increases again towards the end of the five-year forecast period. This is attributed to currently lower rental yields compared to other regions offering more headroom for growth, and a stronger underlying economic outlook for the capital.
This long-term view is critical for developers focused on regeneration. The demand for quality rental accommodation in well-connected areas with appealing amenities remains robust. Key areas for regeneration, particularly those benefiting from new transport infrastructure like the Elizabeth Line (impacting boroughs like Newham, Ealing, and even commuter towns like Reading), are prime candidates for investment. In these transport-linked locations, Build-to-Rent (BTR) schemes are expected to account for over 30% of housing delivery over the next five years.
Furthermore, BTR developments have proven instrumental in kickstarting regeneration in underutilised urban areas. For instance, in Brent (Wembley Park) and Newham (Stratford), BTR has accounted for over one-third of new build delivery since 2019. These projects not only provide much-needed housing but also contribute to the revitalisation of local high streets and communities.
The Rise of Build-to-Rent (BTR): A Cornerstone of Future Supply
The Build-to-Rent (BTR) sector and institutional landlords are poised to play an increasingly vital role in supplying the new housing London and the wider UK desperately needs. This sector offers a professionalised approach to renting, providing long-term income streams for investors and often addressing social value needs within communities.
Current BTR Market Strength:
The UK BTR market is demonstrating significant momentum:
Investment Surge: Q1 2025 saw the highest level of Q1 investment in UK BTR since 2022 (£800 million+), following a strong Q4 2024. Over £500 million of this was directed towards multifamily developments in urban areas. For the fourth consecutive quarter, international capital outpaced domestic investment, attracted by lack of supply, affordability challenges, and long-term demand fundamentals.
Completions Increasing: Approximately 17,300 BTR homes were completed in the year leading up to Q1 2025, with 18,000 completed in 2024 alone, representing 8% of new-build completions in England and Wales (up from 5% in 2019).
Growing Stock: The total completed BTR stock in the UK now exceeds 127,000 homes (a 16% increase from Q1 2024). An additional 50,000 BTR homes are under construction, with 110,000 more in the planning pipeline, bringing the total sector size to approximately 287,000 homes.
Future Potential & Challenges:
While BTR currently accounts for only 2% of the UK Private Rented Sector (PRS), its share is significantly higher in major cities like Manchester (20%). Compared to more mature markets like the US (where Multifamily can be 43-74% of renter households in some cities), the UK BTR market has substantial room for expansion. This growth is anticipated to be fuelled by new market entrants and a diversification of viable locations.
However, challenges remain. Securing funding in a tough debt market and navigating a difficult planning environment are key hurdles. Building safety delays also threaten current housing delivery targets. Supportive planning policy, including revisions to the National Planning Policy Framework (NPPF) that increase housing targets for many Local Authorities, will be crucial.
Recent major BTR consents in 2023/2024 highlight key growth areas: Manchester (over 2,000 units), Leeds (over 4,000), and Birmingham (over 7,000). In London, Greenwich and Ealing each consented over 2,000 BTR homes. Forward funding deals, such as Hill and Peabody's sale at Dagenham Green to Goodstone Living, are also critical for increasing BTR delivery.
International partnerships, like Legal & General with Japanese developer Nomura targeting over 1,000 UK rental homes (starting in Herne Hill, Lambeth), and CompassRock's entry into the Bristol market, signal strong global confidence in the UK BTR sector.
Economic Backdrop: Affordability, Income, and Market Risks
The broader economic context is inseparable from these rental market forecasts. As previously mentioned, a key theme is that rental growth is expected to outpace income growth for the next few years. In 2023, the average PRS household was already spending 35.3% of their income on rent (up from 33% in 2021/22), and this proportion is expected to rise further.
While an "affordability ceiling" is expected to limit absolute rent growth from 2025 to 2028 – meaning increases will likely not exceed income growth during that specific period – renters will still be dedicating a historically high percentage of their income to rent.
Savills acknowledges potential risks to their projections, including:
Affordability Constraints: Especially in London and other high-cost areas, this could temper rental growth more than anticipated.
Macroeconomic Shocks: Unforeseen economic downturns could impact tenant demand and ability to pay.
Regulatory Changes: Further changes to landlord regulations or housing policy could shift market dynamics.
Investment Sentiment: Shifts in investor confidence could impact the flow of capital into new developments.
Alongside rental projections, Savills also forecasts average UK house price increases of around 23.4% over five years, indicating a belief in the overall strength of the residential market, albeit with regional variations and differing dynamics between sales and rentals.
Actionable Insights for Investors & Developers Targeting London Regeneration
For property developers and investors sizing up opportunities in London, particularly in high street regeneration, Savills' forecasts offer several strategic takeaways:
Embrace the Long-Term View: While short-term affordability in London presents challenges, the underlying demand for quality rental housing, driven by a strong economic outlook and population density, remains robust. Focus on projects with long-term viability.
Strategic Focus on BTR: The Build-to-Rent sector is a clear growth area, supported by institutional capital and government housing targets (e.g., the Labour Government's target of 300,000 homes annually). BTR is vital for housing strategies in many Local Authorities, supporting urban regeneration and new transport infrastructure, offering a pathway to professionalise and scale rental offerings.
Identify Regeneration Hotspots: Areas undergoing significant regeneration, especially those benefiting from infrastructure improvements (like Crossrail beneficiaries) or those with local authority support for mixed-use development, offer prime opportunities. Wembley Park and Stratford are testament to BTR's power in regeneration.
Navigate Planning Proactively: With a complex planning environment, early engagement with local authorities and a clear strategy for addressing community needs and planning policies (like the revised NPPF) are essential for BTR and other large-scale rental projects.
Understand Micro-Market Affordability: While London-wide trends are important, deep dives into specific borough and even neighbourhood affordability levels are crucial for pricing and product strategy.
Diversify Offerings: Consider the potential for different types of rental products. While not the focus here, Savills also produces insights into Single Family Housing and Co-Living, which may complement broader regeneration schemes.
Quality and Amenity Focus: In a competitive market, particularly one where affordability is stretched, the quality of accommodation, shared amenities, and professional management offered by BTR schemes can be a significant differentiator, attracting and retaining tenants.
How We Can Support Your London Regeneration Vision
The projected rental growth and the evolving dynamics of the London property market, especially the rise of BTR, present a compelling case for strategic investment and development. However, navigating this landscape requires deep local knowledge, market insight, and expert guidance.
Our team specialises in identifying prime opportunities for regeneration of the high street in London. We offer comprehensive services for investors and property developers, including:
Market Analysis & Feasibility Studies: In-depth research tailored to specific London sub-markets and project types, including BTR viability.
Site Identification & Acquisition: Leveraging our network to find on-market and off-market opportunities in key regeneration zones.
Planning Consultancy & Support: Guiding you through London's complex planning processes to maximise development potential.
Investment Strategy & Funding Advice: Connecting you with a network of capital partners and structuring deals for optimal returns.
Development Management: Overseeing projects from conception to completion, ensuring alignment with market demand and regeneration goals.
We understand the unique interplay between rental demand, affordability, planning policy, and place-making that drives successful regeneration in London.
The Future of Renting in London: Strategic Investment is Key
Savills' projection of significant rent rises over the next five years, underpinned by a fundamental supply-demand imbalance, signals a critical period for the UK rental market. For London, this translates into both pressing affordability challenges and substantial opportunities for innovative, high-quality residential development, particularly within the BTR sector.
Investors and developers who can strategically navigate these conditions, focusing on regeneration areas with strong long-term fundamentals and contributing to the much-needed supply of new rental homes, are well-positioned for success. The market is calling for visionary projects that not only meet housing needs but also revitalise London's high streets and communities.
Ready to explore investment and development opportunities in London's dynamic rental market? Contact our expert team today for a tailored consultation. Let us help you navigate the future of London property and unlock the potential in its high street regeneration.