Average prime property rents in London down, latest figures show

Uncertainty in London’s financial and business services sector and lower corporate budgets continue to suppress rental growth in the capital’s prime lettings markets, new research suggests.

Average rents across prime London fell by 0.5% in the three months to the end of September, to leave values down 0.9% year on year, latest figures from international real estate adviser, Savills.

This continues a trend of lacklustre rental growth seen since the middle of 2011, meaning that rents have underperformed capital value growth for twelve successive quarters.

The small falls are concentrated in the higher value markets of prime central London, particularly in the prime north west London markets of St John’s Wood and Hampstead where rents have fallen 3.3% in the past three months and down 7.6% year on year. But falls have largely been precipitated by some sharp reductions in the market for family houses over £2,000 per week.
By contrast, small rises have been seen in the lower priced markets of prime south west London and east of City locations of Wapping and Canary Wharf.

The firm says that falls in prime central and northwest London have been triggered by rising stock levels coupled with reduced corporate relocation and city and financial sector employees budgets.
Investor activity is bringing more prime central London new build stock to the market, while the recent introduction of an annual levy on enveloped properties has prompted some owners of properties held in corporate structures to let them out on a commercial basis to avoid the levy.

By contrast, small rises have been seen in less expensive outer prime locations, particularly the southwest and east of city markets, where rents average around half the levels seen in prime central London.

Rents are now 4.1% above their 2007 peak in the prime east of city markets and 2.6% above in south west London, compared to prime central London where values are 4.5% down.

East of City locations Wapping and Canary Wharf were the strongest performers over the past three months, with rents rising by 1.7%. Growth was driven by strong demand over the summer from corporate tenants, students and sharers, all chasing limited stock and value for money relative to more central locations.
‘This pattern of outperformance by prime outer London locations is expected to continue over the mid term, as more central locations absorb new stock and adapt to lower levels of demand from the financial sector,’ says Sophie Chick, Savills residential research analyst.

However, Islington is the exception. Values fell 1.1% in the quarter, a response to increasing numbers of houses available to rent against unusually low family demand.

‘New landlords are encouraged to consider accepting professional sharers to ensure a quick let and reduce costly void periods,’ explained Dan Parker, lettings director in Islington.  ‘Landlords will need to weigh up the inconvenience of higher turnover from sharers against the benefits of longer tenancy agreements but more wear and tear from young families,’ he added.

Beyond London rental values have slipped in line with the prime London average, falling 0.4% in the past three months. The sales market in the South East of England has lagged London’s recovery with those employed in the capital preferring to live in the city, and this pattern appears to be being repeated in the rentals market.