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Flats for rent. Leasing market – Q2 2023. Analysis

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Rental rates in the second quarter fell in all market segments. Renting of medium-sized and large flats was the strongest. The reason is a significant supply with shrinking demand, according to an analysis by Expander and the rentier.io portal.

“Since October 2022, we have been observing stabilization on the rental market. It is an almost alternating cycle of monthly increases and decreases in rental rates. In May and June, this trend continued. In May, the cost of rent was 1.23% lower than in April, and in June there was an increase of 0.56 percent. – it was written in the analysis.

It added that “when we take a closer look at these changes, this stabilization is increasingly starting to look like the beginning of a downward trend.”

“Rates in June, compared to January, fell in 10 out of 16 cities for which such data is available. The average change in rental rates in this period shows a slight decrease of 0.4 percent. It is also noteworthy that in June new offers were added to portals by as much as 25 percent more than in May.

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Lease rates in June 2023expander

Lease costs

“Clearer decreases in rental rates can be seen in quarterly data. Medium-sized apartments (35-60 m2) are the most cheaper, by 3.1% quarter-on-quarter. Rates lower than in the first quarter were recorded in 14 out of 17 cities. In the case of large apartments (above 60 m2) decreases occurred in 12 out of 15 cities for which data are available, and the average change was -3% q/q. / sq. Decreases occurred in 10 out of 14 cities, the analysis states.

It was added that when it comes to the situation in individual cities, the largest decreases in the cost of rent were recorded in the case of large apartments in Gdynia (-13% q/q).

“However, it should be added that the rates for small and medium-sized apartments in this city have increased (by 5% and 2.4%, respectively). Looking at the individual cities as a whole, Bydgoszcz and Wrocław are the worst performers, where rates are falling in all segments. Renting a large apartment in Wrocław decreased by as much as 7.4 percent, medium-sized by 3.8 percent, and a small apartment by 3 percent, while in Bydgoszcz it was -0.1 percent, – 5 percent and as much as – 9 percent for small premises. This is of course good news for those who plan to mess with a rented apartment in one of these cities, “we read.

The analysis indicated that “the only city where rental rates in all segments were higher than in the first quarter is Gdańsk”, and “renting a small apartment there increased by 3.2% q/q, average size by 3, 4 percent q/q, and a large one by 0.4 percent q/q.”

Lease costs per m2 in Q2 2023expander

More apartments, less demand

The analysis mentions the reasons for the stagnation on the rental market.

“The first reason is the saturation of the market with apartments. Everything indicates that at the beginning of the year the level of balance between demand and supply was reached. However, more and more apartments are entering the market. Thousands of people will buy their first apartment or build a house. Some of them have been tenants so far and will soon move to their own apartment building. This will have a significant impact on the situation on the rental market.

It was added that “there will be a lot of moving from rented flats to own flats in the near future”, and “this is due to the fact that for many months young people were not able to take out a mortgage” and “that is why they were forced to postpone the purchase of their own flat for the future” or building a house.

“The Safe Credit 2 percent program has changed this. You can get it without own contribution. The available loan amount is over 30%. higher than for a regular mortgage. Such a loan is also very cheap thanks to subsidies that significantly reduce installments in the first 10 years of repayment.

It was also indicated that in all the analyzed cases, the amount of the first installment of the Safe Loan 2% “will be lower than the cost of renting the same apartment”, while “for a flat with an area of ​​45 m2, purchased without own contribution, the largest difference is in Warsaw, where the cost of renting is PLN 3,177, and the first installment of the Safe Loan 2 percent will be PLN 2,629.

“So you can save PLN 548 a month by moving to your own apartment. In addition, it is worth remembering that the installments of this loan are decreasing during the first 10 years. The fact that the loan is repaid only for a certain period of time also speaks in favor of owning a flat, and you have to pay for renting pay always, as long as we want to live.

It was emphasized that “this does not mean that the demand for rent will collapse completely”, because “there will still be people on the market who, for various reasons, cannot or do not want to obtain such a preferential loan”.

“In the case of, for example, young people who do not yet have creditworthiness or who do not yet know where they want to live permanently, renting will still be an attractive solution. The ongoing changes are an opportunity for them to reduce the cost of rent or change the rented apartment for a better one” – we read in the analysis.

Comparison of the cost of rent and the first installment of Secure Loan 2%expander

Rental profitability – what’s going on?

The analysis indicated that “rental profitability ratios, which increased almost throughout 2022, continue to deteriorate”.

Gross profitability (excluding additional costs) in June averaged 6.6 percent (7.0 percent in January). Adding additional costs such as broker’s commission (3 percent), PCC (2 percent) assuming that we buy from the secondary market, notarial fee and extracts, refreshment after purchase, furniture, cyclical expenses for refreshment and minor repairs, real estate insurance and lump sum tax (8.5%), return on investment in a 50-meter apartment is 5.3 percent net. This is equivalent to the profitability of a bank deposit with an interest rate of 6.54 percent.” – given.

It was added that “the highest profitability rate based on quarterly data is in the segment of small apartments and amounts to 7.1 percent gross”.

“In the case of medium-sized flats, it is 6.4 percent gross, and in the case of large flats, 5.7 percent gross. The rates of return on small flats are the most attractive in Sosnowiec (8.8 percent gross), Łódź (8.1 percent gross and gross) and Szczecin (7.8 percent gross). The worst is in the case of large apartments in Gdynia (4.8 percent gross), Białystok and Kraków (5.2 percent gross each)” – we learn from the analysis.

Net return on investment in an apartment and the equivalent interest rate on a depositexpander

Methodology

“Calculations were made on the basis of 73,175 rental price announcements and 90,754 apartment sale announcements. The latter were used to estimate the return on investment in an apartment for rent. The above analysis concerned apartments appearing in online advertisements in the period from April 1 to June 30, 2023. mean the median of the set for a given city.

It was explained that from May 2023 the method of collecting data was modified, which resulted in an increase in the number of analyzed rental advertisements in the database, so “no conclusions should be drawn on the basis of the presented number of advertisements before May 2023 and after this period”.

Main photo source: Shutterstock



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