In the three months to January, tenant demand for residential property continued to rise at a similar pace to that recorded in the three months to October, reveals the RICS residential lettings survey November 09 – January 2010

A net balance of 16% more surveyors reported a rise in demand for property than a fall. Within this, there was greater demand for houses than previously, with 27% more surveyors reporting a rise. This compares with 23% in the previous quarter. Respondents reported that demand for flats continued to edge up although at less than half the pace of that for houses.

Meanwhile, new instructions were down for the second consecutive quarter, and at a faster pace, with 23% more surveyors reporting a decline than a rise. Interestingly, surveyors found no difference between new instructions for flats or houses, both registering a net balance of -24%. The fall in instructions is consistent with evidence thatmore supply is at last finding its way onto the sales market.

The shift in the balance between demand and supply is now being reflected in a turnaround in the rental picture. More surveyors reported a rise in rents than a fall, albeit only just, for the first time since the three months to July 2008. This marks a significant shift in sentiment as it is only six months ago that the net balance on rents was negative to the tune of 58%. The rental net balance edged up to 0% compared to –3% in the previous quarter.

Meanwhile, rents look likely to push upwards over the coming months with respondents to the survey becoming more positive on expectations; the net balance reading increased to +33%.

Even though less property is coming onto the market, landlords appear in no rush to sell their property at the expiry of a tenant lease. The proportion planning to do so has risen only a fraction on last quarter’s result of 3.2% to 3.6%; it still remains below the long run average.

Turning to the regional picture, tenant demand was strongest in the South West market while London was amongst a number of regions seeing demand moderate. New instructions were down across all regions, with the South East experiencing the greatest fall.

Rents declined in most regions, but at a slower pace than previously was the case. London and the South East were exceptions to the broader picture with agents reporting positive net balances on rents in these areas. Gross yields were down across all regions, with the South East proving, once again, to be an exception to this.

RICS spokesperson Jeremy Leaf commented:

“It is becoming clear that movements in the housing market are affecting lettings: the RICS housing survey has seen a steady increase in the number of new instructions coming on to the market over the past few months, whilst simultaneously we see with this survey that the number of properties available to rent has decreased.

This is a clear sign that the accidental landlords are returning to the sales market. If demand remains strong, which it is likely to as many first time buyers are still finding themselves priced out of the housing market, then rents should continue to rise as would be tenants compete for fewer properties.”