Key findings from Prime Central London Rental Index:
- Prime London rents fall 0.5% in October
- Rents fall 2.7% on an annual basis
- The City and Notting Hill buck the trend with annual rental growth of 3.2% and 2.7% respectively
- The volume of tenancies agreed over the past three months has risen 18% compared to the same period in 2011.
Weaker conditions in the central London employment market are playing their part in ensuring the slide in rents continues into the fourth quarter, argues Liam Bailey, Knight Frank’s Head of Residential Research.
Prime central London rents continued on their downward trajectory in October with a fall of 0.5%, taking the annual rate of decline to 2.7%.
While the general trend is for weaker rents, some central London locations bucked the trend, with rents in the City of London, for example, climbing 1.6% in the three months to October and 3.2% over the past year. Notting Hill also experienced a 0.5% growth in rents in the three months to the end of October, and a 2.7% rise over the year.
The state of the London economy remains the main factor impacting on rents, with the Eurozone crisis reinforcing the downward pressure on growth, confidence and recruitment. The prime central rental market in London has been particularly hit by the downturn in financial sector employment caused by the lacklustre UK economy and the ongoing problems in the Eurozone. News that UBS is to cut up to 3,000 jobs in its London offices, combined with similar moves by Credit Suisse and Deutsche Bank, mean this trend is likely to continue.
Affordability is a central issue for tenants at the moment, and landlords should expect a continuation of weak growth over the next few months, as demand fails to keep pace with supply. Unsurprisingly, this is most evident in the £1,000 to £2,000 per week bracket due to the fact that mid-level City jobs have been most affected by cutbacks.
The strongest part of the central London rental market remains the lower price ranges, with average rents in the £500 to £1,500 per week bracket down by only 0.1% in the three months to October, compared to a decline of 1.2% in the £1,500+ per week bracket.
As we commented last month falling rents tell only half the story and despite the weakness of the headline rental statistics, overall letting volumes are up strongly, with an 18% increase in the volume of tenancies agreed over the past three months to end September versus the same period in 2011.
Tim Hyatt, Head of Residential Lettings, Knight Frank, said:
“There are two contributing political factors that could provide a useful guide to the London lettings market in the next few months: firstly, speculation around Government policy is dampening £2m+ property sales and will inevitably lead to an increase in high-level rentals as potential buyers decide not to commit while there is so much political dithering about a potential Mansion Tax.
“Secondly, you cannot discount the effect of Obama’s re-election on London as US citizens make up such a substantial proportion of the Capital’s tenants. If the US continues to react negatively to its political divisions then we will see more relocation from the US, and this will benefit the London market.
“But both these factors will be offset by the tough job market in the City at the moment, and in the short term this may be hard to overcome in regards to rental pricing. However, the volumes of lettings activity show that we are still progressing towards becoming a nation of renters, particularly with the current strictures surrounding the mortgage market. This, finally, is the overriding trend that will come to demonstrate the importance of the private rented sector within the wider UK housing market.”