Jersey residential rental market update
Jersey's residential rental market is experiencing noteworthy shifts that may surprise some observers. This article delves into some of the current factors influencing the pricing of leasehold accommodation and offers insights into the potential trajectory of the market.
Given the stagnation in Jersey's residential sales market, one might logically assume that individuals unable to secure mortgage financing for property purchases would turn to the leasehold sector. This assumption holds some truth, as we have observed a noticeable increase in demand from renters. If the supply of rental properties remained constant, we would likely witness a continuation of the rental price increases seen over the past two years. What has transpired, though, is a substantial increase in the supply of all shapes and sizes of rental accommodation.
The primary drivers behind this oversupply are changes in population and inflation. Since 2019, net migration in Jersey has been outwards with more people outwardly migrating than inwardly migrating, influenced by the events of Brexit and the Covid-19 pandemic. The other big story has been the rise in inflation, principally brought about by supply side constraints rather than increasing consumer demand. Central banks moved by quickly and consistently raising interest rates. The rise in borrowing costs has directly impacted the ability to finance home ownership, pushing homeowners unable to sell their freehold interest into the leasing market, referred to as accidental landlords.
Over the last 12 months, there has been a significant uptick in the completion of new 1 and 2 bedroom apartment developments. Developers, facing the absence of first-time buyers and buy-to-let investors, have reluctantly opted to lease these units. The slowdown in the sales market has also compelled other brackets of potential sellers to temporarily lease their properties, awaiting a recovery in the sales market.
While oversupply is particularly acute in the 1 and 2 bedroom apartment rental market, larger properties of 3 bedrooms and above exhibit a more balanced ratio between supply and demand. It is however important for all Landlords to recognise that the under supplied market of the past few years, which witnessed remarkable growth in rental values, is no longer the norm.
The completion of several high rise developments around St Helier has intensified competition among investors seeking tenants for their properties. This surplus of available properties has led to asking prices below traditional market values, driving down prices in this sector. The availability of newer, high spec properties at lower prices has prompted tenants to vacate older properties, resulting in a significant number of vacant older properties.
Regarding the future of residential rental accommodation, we anticipate that pricing will stabilise at the current level for the next 12 months. Our recommendation to landlords is to exercise prudence in determining rents when existing lease agreements come up for renewal. In light of Jersey's continuing and persistent high inflation, we also advise landlords not to rely solely on a Retail Price Index increase. Instead, it is advisable to engage your agent in evaluating the market rent for your property, ensuring it remains competitive in comparison to similar accommodation.
While we anticipate an uptick in transactions within the sales market next year, offering accidental landlords an opportunity to divest their freehold interests, a return to a standard level of turnover might take additional time. Until such normalisation occurs, rental increments are expected to be modest, with average annual increases ranging from 2% to 3% over the medium term.
Regardless of the economic cycle, the principal advice we offer our clients remains unchanged:
- If you have a decent reliable tenant who takes good care of your property, retaining them is a sensible course of action.
- Set rents at levels that will attract tenants, providing you with several applicants to choose from. It’s important to attract a Tenant that will not only pay the rent but will also look after your expensive investment.
- Setting high asking rents tends to lead to longer void periods and a shorter list of potential applicants, in short it is counterproductive.
We take pride in providing an honest market appraisal, please contact our Lettings Team today on 01534 766689 or email firstname.lastname@example.org to discuss how we can help you to let your property.
Darren Donnelly 15.11.2023