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Prime central London market still on the up but rentals downsize

Prime London capital values rose by 1.1% in the quarter, itself a slowdown from 3.2% growth in the previous three months, while rents rose by an average of just 0.4% compared to 1.8% in the second quarter. Annual prime London price growth now stands at 8.5% compared to 7.3% rental growth.

‘Conditions in the prime London rental market are still favouring landlords. But the fact that house prices have outpaced rental growth means yields remain suppressed, so the advantage is good occupancy levels rather than income growth,’ said Yolande Barnes, director of Savills residential research.

‘The balance of supply and demand is showing that supply coming on to the rental market is below average for this time of year. We had anticipated that by this stage in the market we would be seeing accidental landlords, those unable to sell and so forced to rent their property, bringing stock to the market. A robust prime London sales market has, to date, meant this has not been the case,’ she added.

The report also shows that corporate demand for family homes has dropped off. Again, this is particularly noticed in south west London where house rental prices dropped 0.7% in quarter three.

‘Typically, the prime London family house market is fuelled by corporately funded families who would rent a four bed house, but we are increasingly seeing them downsizing to three bed properties with their budget cut from £2,000 per week to £1,200 per week,’ said Jane Ingram, head of lettings at Savills.

‘The lettings market is definitely responding to the current economic uncertainty and the corporate geared market always suffers most at such times and rents are coming off by around 5%. Companies are sitting on their hands and relocation demand is therefore coming in at the lower end of prime, with budgets below £1,000 per week,’ she added.

Prime Central London prices have seen a small growth in both houses and flats quarter on quarter. The international student demand has kept the flats market in particular very busy over the last few months, with an average budget of £1,000 per week, but rising to £7,000 per week with much of the demand coming from the Middle East and Asia.

‘For landlords prepared to take in a student this can be a very good let. International tenants don't have a credit history here so pay a year in advance. Whilst seasonal slow down is expected as this time of the year, there is no doubt the economy is having an effect on the corporate driven market,’ explained Ingram.