It has been a unusual year in the HMO market with a larger than expected seasonal variation in market conditions with a poor QTR 1 and an excellent QTR 2. One constant is the standard and quality of what tenants expects continues to grow year on year and this year we have made substantial investments into the quality of both our owned and rent to rent stock which has helped us meet the challenges the market presented us, especially in QTR1. Here is an overview of the first two quarters market performance from our perspective and also an overview of rental returns so far in 2018:
Following a very successful 2017 with 95%+ occupancy and excellent retention, QTR 1 came as something of a surprise with a much higher turnover than anticipated. At one point the Spare Room ratio of rooms to tenants was 4:1, a very unwelcome development. Along with the colder than expected weather in Feb/March we experienced our lowest ever occupancy (down to 80% at one point) since we began the business and our worst trading month since early 2016. Other operators we spoke to were also experiencing the same market conditions, high turnover of tenants and limited supply of new tenants.
Since then Nottingham HMO rental market conditions have really picked up in QTR 2, the traditionally busier summer period has delivered this year, looking at Spare Room there is now a healthy 420 tenants looking VS 760 rooms available so it seems the issues of QTR 1 are a long way behind us. This is also borne out in our figures, we only have one void across the entire portfolio and better than usual retention. A very welcome development, also helped by our investment programme i.e. decorating all rooms when they become vacant. This could also be explained by the usually warm summer, and arguably this is could explain a lot of the higher the usual season variation this year?
Nottingham HMO Rents in our view have remained largely static throughout 2018, despite the general rental single let market in Nottingham seeing strong increases. This is also supported by the Spare Room rental index which seems Nottingham posting an average rent of £401 a rise of 4% since 2017 (so just above inflation). Against increased costs this means profitability remains flat or declining slightly. We also engaged in some very selective discounting in the challenging QTR1 with our Rent to Rent stock and we expect to see static rents within that stock we hold.
As Section 24 and new regulations begins to bite harder in 2019 it is widely expected that Nottingham flat rents will have to rise, due to diminished supply i.e. landlords selling up. These factors also may increase HMO supply as landlords seek more revenue so the effect of Flats becoming more expensive may mean many tenants stay put as they are unable to trade up to a flat. This will mean that HMO rents will remain fairly stable or could be in line for a small rise early in 2019.