According to HousingAnywhere’s latest Rent Index Q1 2020, as most of the world’s economies are reeling from the impact of the corona crisis, the effects on the European rental markets are starting to show – with previously accelerating rental prices coming to a stop.
While January and February still mostly show a continuation of the trends that were visible in Q4 with rents increasing, March saw the first declines in rental prices, consequently breaking the trend.
The development of rental prices has been reduced to a minimum in most cities and the number of available rental properties is increasing. In cities like London and Amsterdam, notorious for their high rental prices, rents showed the smallest increase since 2015 by 0.5% and 0.1% respectively. Barcelona is showing its first drop in rental prices since 2013, with a quarterly rental price development of -0.1% for one-bedroom apartments and -0.8% for single rooms.
Top 3 biggest rental increases in Q1 2020 compared to last year
In Q1 of 2020, Vienna saw the highest overall YoY increase in rent: 11.5% for apartments, bringing the monthly rent to an average of € 1,016, and an increase of 10.4% for studios, to € 839 per month. The increase is for a large percentage the result of higher-priced accommodation making the switch from the short-term rental market. Vienna has recently installed a short-term rental zoning legislation. This legislation prohibits landlords in certain areas (zones) from renting out short-term rentals. A more representative increase in the market is seen reflected in the price for single rooms, which were up by 2.5% to € 482 per month.
Madrid saw the second-highest overall increase in rent prices year over year. Apartment prices increased by 4.7% to € 1,150. Prices for studios climbed by 5.4% to € 847 and single rooms by 8.1% to € 546. Increasing popularity has secured a positive development in rental prices for this quarter; due to the uncertain political climate in Catalonia, the overall demand for Barcelona has been under pressure, leaving Madrid to be considered a more preferred choice by tenants.
In third place ranks Berlin, where rental prices for apartments have increased by 4.3% to € 1,144 compared to last year; an increase of a mere 0.1% compared to last quarter. Studio prices increased by 7.7% to € 893 and the average rental price for a single room increased by 5.9% to € 581. In February of this year, the Mietendeckel (rent ceiling) was activated, causing landlords to lower their prices. While many landlords are waiting as the Mietendeckel is still to be ruled over by the highest court in Germany, other landlords fear that they have to pay overcharged rent back to their tenants and reduce their rent.
European rental markets
The increase in rental prices coming to a halt cannot be fully attributed to the outbreak of COVID-19 and its resulting crisis. Although some cities saw their rents increase, the majority of cities in Europe saw rent increases leveling out by the end of last year. In February, the much-discussed Mietendeckel came into effect in Berlin, instigating a rent freeze for five years. The city currently has an increasing percentage of vacant rental properties, as landlords are waiting for the verdict of Berlin’s highest court on the legitimacy of the legislation.
In Spain politics also plays a role, as the political climate in Catalonia is resulting in less demand in Barcelona. Currently, tenants prefer Madrid as it’s considered a more stable city to live in. This breaks the trend for Barcelona, which was one of the cities with consecutive increases of 8-10% in rental prices throughout 2019, as compared to previous years.
Italy, the first hard-hit European country by COVID-19 showed a relatively stable Q1 in terms of rental prices, as the majority of rental properties were already booked for Q1. The country, which has a large percentage of international renters, is likely to see the effects of the crisis in Q2 reflected in its rental prices. Here, rental prices can potentially drop as low as only covering the landlords’ expenses, a similar strategy currently seen implemented by landlords in Barcelona. Here, landlords in some cases charge tenants a cost-covering rent, to prevent vacancy and secure enough income to prevent going into debt.
For London apartments, the increase in rental prices has slowed down to the level of 2015. Rental prices for this city were already levelling out at the end of 2019. Despite the slowdown in rental price increases in this capital, London remains the undefeated number one most expensive city in Europe.
In the Netherlands, Amsterdam remains the number one most expensive city to rent, with Rotterdam’s increasing popularity not pushing up rental prices as before. Rotterdam’s increasing rents were already shown to be levelling out at the end of 2019. Combined with the halt in international mobility (which has a big impact on this city with its large international workforce) the rental increases could slow even further.
Switching short term to mid- and long term
As a result of a ban on international travel and an increase in legal restrictions on vacation rentals, short-term rental properties are increasingly being put on the mid- and long term rental market. Short-term rentals refer to stays from one night up to a month, while mid-term rentals are stays from one month to a year. The number of available properties has increased on average by around 170% on the HousingAnywhere platform, and in some cities by over 300%. The increase in supply can further impact the development of rental prices.
“As travel and international mobility has halted, landlords are freezing their rental prices, and in some cases, even lowering them,” says Djordy Seelmann, CEO of HousingAnywhere. “As the market is reorienting itself, we do see an increase in local transactions on the platform, which can be attributed to two trends: local landlords and real estate players looking for online platforms to help them reach a bigger audience, and short-term rental making a shift to mid-term rental. What we’re seeing is short-term rentals being put on the platform for mid- to longer-term use. Diversifying portfolios is another trend we’re seeing at the moment, where landlords choose a combination of short, mid and long-term rentals. The question remains how long this trend will last once the COVID-19 crisis is over and international travel and mobility starts returning”.
The long-term effects of the corona crisis
With outbreaks very likely to return with resulting limitations on (international) travel, 2020 will prove to be a dynamic year with regards to the mid- to long-term rental market. Global economists seem to agree that in Q3 the first signs of the economy’s recovery will be visible. If the 2008 economic crisis can serve as an indication, homeownership will decrease and the demand for rentals will increase in the coming years. Seelmann: “It’s important to keep in mind during these uncertain times that in the past, government initiatives focussed on applying stricter control of the domestic real estate market. For instance, rent caps have been proven to be successful short-term solutions to housing affordability. If we want to achieve a balanced market with enough affordable housing for both current and future demand, governments need to implement productive measures. Political issues are expected to continue weighing down the performance of the real estate industry for some time to come. Local governments can make a difference with flexible policies towards investors and ensuring land prices become more attractive investments. Now is the time for dialogue and collaboration between politicians, landlords, property investors, and tenants”.