The past couple of years have been a sharp wake-up call for the rental sector, and more widely, the property sector in Scotland. Restrictions and changes to the way we live and work have impacted demand and supply across the market.

However, whilst many factors have been changing, the historic undersupply and demand for new homes in Scotland, especially in key locations, remains ever present.

Homes for Scotland has estimated the need for 25,000 new homes a year, across all tenures, to meet current demand. The 10-year average has been 17,000. Against this backdrop, the BTR tenure has the potential to be leading delivery partner for the property sector, if it is given the opportunity.

Supply by City

The BTR pipeline in Scotland has continued to grow despite the pandemic, or potentially, due to the pandemic.

Preceding the pandemic there was just over 9,000 units in the BTR pipeline in Scotland. There was a significant increase of over 50% between 2018 and 2019. In 2020 the year-on-year rate of increase slowed as a result of the pandemic, only rising by 7%, or 630 units. However, in 2021, over 2,500 units were added to the pipeline, which was an increase of over a quarter year-on-year.

The concentration of supply in Scotland remains resolutely focused in the two largest cities, with half of the pipeline in Glasgow and a third in Edinburgh.

count of pipeline units by city infographic

This figure could dramatically change if some of the current proposals, which consider BTR as a component of major masterplans, come to fruition.

scheme status by number of units infographic

The Scottish Rental Market

Rents in Scotland have been on an upward trend over the past decade, with the exception of Aberdeen.

Historically, Edinburgh has often seen the strongest growth, with the economic and cultural dynamism of the capital driving demand. This has meant that over the past 5 years, average advertised rents in the capital have risen by almost a quarter.

This upward trajectory of the capital was dented during the pandemic, when restrictions on economic migration, short let demand and student demand, reduced rental market activity. Since lockdown eased growth has recovered in the Edinburgh market, with average rents jumping 15% in the past year. Over the past 5 years Glasgow has seen strong and consistent growth, outperforming Edinburgh, with average advertised rents rising by 32%.

A key issue in the market has been the falling supply of stock. Against this falling supply, demand remains strong, and as interest rates rise and the cost of house purchasing increases, we are likely to see the number of households electing for the flexibility of the rental sector increase.

As we have outlined in the Briefing, Scotland and its main cities are well-placed to benefit from BTR expansion, but if the Scottish Government wants a thriving BTR, and sees it as part of the solution for the housing crisis, it needs to quickly re-assure institutional investors looking to fund this significant increase in the supply of homes that this is purely temporary measure.

Dr John Boyle MRICS
Director - Research & Strategy