Vulnerable employment sectors – which residential rental markets are most exposed to an increase in unemployment?
In this article we consider aspects of the UK rental markets which continue to be vulnerable in the pandemic. So far, the unemployment rate has grown to 4.8% in the three months to September (0.7% higher than the previous quarter). Redundancies are at the highest level since 2009 and are unevenly spread. 60% of the fall in employment has been in the 16 to 24 year age group, with a large proportion in the leisure, retail, travel and recruitment sectors (Office for National Statistics).
We still do not know the true impact Covid-19 has had on employment, with many people on the furlough scheme, which has now been extended following the announcement of a second lockdown.
In August, the Bank of England forecast the unemployment rate would rise to around 7.5% by the end of the year, and then improve gradually from the beginning of 2021, returning to 4.0% by Q3 2023.
In this article note we consider which residential rental markets are most exposed to an increase in unemployment. We interrogated DRMA, Dataloft’s rent paid and tenant demographic dataset, to identify tenant employment sectors for the top 10 cities in England and Wales.
What does the evidence say?
- Retail, leisure and transport are some of the most vulnerable job sectors. Retail (including online) is the employment sector for 12% of private tenants, leisure (including hospitality) accounts for 6% and transport 5%.
- The public and financial/professional sectors are arguably two of the least vulnerable job sectors. 20% of private tenants work in the public sector and 20% work in the finance/professional sector.
- There are significant variations in the breakdown of tenants by employment sectors between the top 10 cities. Newcastle has the highest proportion of tenants working in retail and leisure (23%) and London has the lowest proportion (15%). The proportion of tenants working in the transport sector ranges between 3% and 6%.
- The public sector varies by city, accounting for 27% of tenants’ jobs in Portsmouth yet only 15% in London. It is no surprise that London has the greatest proportion of tenants working in the finance/professional sector (27%).
- The 16 to 24 year age group accounts for 60% of the fall in unemployment since the start of the pandemic. This age group makes up nearly a quarter (22%) of employed tenants in the private rental sector.
Landlords are exposed to the economic impact of Covid-19 and those whose tenants work in leisure, retail and transport sectors are more vulnerable. A second lockdown led to an extended furlough scheme, but many businesses will struggle.
With more than 24% of tenants working in these three key sectors in five of the top 10 cities, the recovery is clearly going to matter to investors, and it makes sense for landlords to offer support if at all possible.
Up to the end of July, only 8% of tenants had asked landlords for a rent reduction (Property Academy Tenant Survey); this could increase in the next months. Landlords should consider the implications of a temporary rent reduction or waiver, against the prospect of a void and the challenge of re-letting, especially as rents are under downward pressure in many cities. As a landlord myself I have protected my rental income with rent guarantee schemes, Martin & Co (Exeter) are please to offer these to most landlords.
Jobs in hospitality and travel are likely to bounce back once the pandemic is under control, and most commentators expect a strong recovery. High street retail is different with underlying structural weaknesses being exposed by the pandemic – lockdown has helped to entrench online shopping habits.
The financial/business sector is one of the least exposed. London has the greatest proportion of tenants working in the finance/professional sector, yet rents have declined since the pandemic. Falling rents can be explained by a temporary increase in supply caused when thousands of short-term rental units, normally aimed at the business and travel market, were redirected into the mainstream rental market.
If you would like to know more about how the pandemic may affect your buy to let investment in the South West or would like to know more about our rent guarantee products then feel free to contact Chris Perring at Martin & Co (Exeter) Tel 01392 254488.
Information sourced from Dataloft 2020