The first quarterly improvement in two years exposes the rental market’s central imbalance
Tenant demand has strengthened for the first time in two years, but landlords remain more inclined to sell rental homes than buy them. That combination should concern policymakers as much as it interests investors.
New Landlord Trends research from Pegasus Insight found that 63% of landlords described demand in their local market as either very strong or quite strong during the second quarter of 2026, up from 58% in the first quarter. It was the first quarterly increase since the opening three months of 2024.
The change is modest, but important. Demand appears to be turning upwards again while the appetite to add rental supply remains weak. If that divergence continues, tenants could face fewer choices and renewed pressure on rents even though the market is nowhere near the exceptional demand recorded two years ago.
Demand has improved—but not returned to its peak
The proportion of landlords reporting strong demand stood at 83% in the first quarter of 2024. It then declined steadily, reaching 61% by the final quarter of 2025 and 58% in the first quarter of 2026 before recovering to 63% in the latest survey.
The improvement was driven by the strongest responses. Some 29% of landlords now describe demand as very strong, seven percentage points more than in the previous quarter, while 34% report quite strong demand. Only 5% describe demand as weak.
These are landlords’ assessments of their local markets, not a count of enquiries or applicants per property. They show sentiment and operating experience rather than a precise national vacancy rate. The results should therefore be treated as a significant signal, not proof that every area or property type is experiencing the same recovery.
A second survey gives a softer reading
The latest Royal Institution of Chartered Surveyors survey reported broadly flat tenant demand in the three months to July, with a net balance of -1%. At first sight that seems to conflict with Pegasus, but the two surveys ask different respondents different questions over different periods.
Pegasus records the proportion of landlords who consider demand strong during the second quarter. RICS measures whether agents saw demand rise or fall over the three months to July. A market can still have strong demand while the rate of increase is flat. Both surveys are also sentiment indicators rather than direct counts of available homes and applicants.
More importantly, the supply message is consistent. The RICS net balance for new landlord instructions remained firmly negative at -27%, while Pegasus says its wider research continues to find landlords more likely to sell property than buy. RICS respondents nevertheless remained positive about rents, with a net balance of +28% expecting increases over the following three months.
Demand without investment is the real warning
Strong tenant demand can support occupancy and reduce void risk, but it does not automatically make a rental property profitable. Finance, tax, maintenance, insurance, energy improvements and regulatory costs still determine whether an investment is viable. A busy lettings market cannot compensate indefinitely for a weak business case.
Nor should high demand be mistaken for a healthy market. It may simply show that too many households are competing for too few suitable homes. Affordability can also suppress measured demand because tenants stop moving, compromise on location or remain in unsuitable accommodation rather than enter a costly search for another property.
The latest figures do not prove that regulation has caused landlords to sell, nor do they establish that rents must rise. Decisions to retain, buy or sell are influenced by interest rates, tax, personal circumstances and local property performance as well as legislation. What the evidence does show is that demand is no longer weakening while fresh landlord supply remains constrained.
What this means for landlords and tenants
For landlords who remain, the market may provide a more dependable pool of applicants, but careful pricing and selection remain essential. Advertised rent must reflect local affordability and the quality of the property rather than an assumption that every home will attract intense competition. Strong records, realistic running-cost forecasts and disciplined property standards matter more than a national headline.
For tenants, the danger is that a demand recovery arrives before supply improves. That would reduce bargaining power and make it harder for households with lower incomes, children, pets or more complex circumstances to secure a home, even where discrimination is prohibited. A smaller choice of properties can also force tenants farther from work, schools and support networks.
Government cannot regulate supply into existence
The private rented sector needs effective standards and fair treatment for tenants. It also needs enough responsible landlords willing to provide homes. Those objectives are not opposites: poor practice should be enforced against, while investment in safe, well-managed rental property should remain economically credible.
One quarterly improvement does not establish a new long-term trend. The next surveys could show demand flattening again, and substantial regional differences will remain. But the direction of travel deserves attention. When tenant demand begins rising while landlord investment remains subdued, waiting for rents and homelessness pressures to worsen is not a housing strategy.
The policy priority should be to increase supply across social housing, traditional private landlords and purpose-built rental homes. Without that broader response, stronger demand will not be a sign of success. It will be another warning that the people who need to rent are outnumbering the homes available to them.
NetRent does not provide legal advice. This article represents our understanding of rental property law and is provided for general information only. Landlords should obtain independent legal or professional advice where appropriate.
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