With average weekly rents in prime central London reaching over £1,000 a week prospective tenants are being drawn further out at the same time as those with higher budgets decline, according to the latest residential property forecast from Cluttons.
It says that areas such as the Isle of Dogs, Limehouse and Wapping have seen a 42% increase in tenant demand in the first three months of 2013 while Clapham, Battersea and Wandsworth have seen a 53% rise in tenant demand.
The firm forecasts rental growth of 3% forecast for 2013, followed by 3.5% in 2014 and it expects the trend for demand outside the traditional central area will continue.
The report explains that while tenant demand in the capital is still being supported by students and new job starters, the cost conscious behaviour of businesses is being reflected in reduced accommodation allowances. This is impacting on demand and asking rents for higher budget properties.
Consequently, tenants are spreading their wings to focus on lower priced properties in zones two and three, as they seek to minimise outgoings, particularly as stubborn inflation continues to erode real incomes.
Areas to the east including the Isle of Dogs, Limehouse and Wapping have seen an increase in tenant demand of 42% between the fourth quarter of 2012 and the first quarter of 2013, with rents returning to positive growth in after plateauing at the end of last year.
Similarly, Clapham, Battersea and Wandsworth in the south west have collectively seen a 53% quarterly increase in tenant registrations in the first quarter with a corresponding upturn in rental values across the area.
‘Supply is now creeping ahead of demand in prime central London and this is driving tenants to seek out rent reductions at renewal. While some landlords are prepared to negotiate a lower rate or no increase to mitigate a void risk, RPI uplifts are being achieved, particularly for high demand properties such as well located two bedroom flats which suit couples and sharers alike,’ said Sue Foxley, head of research at Cluttons.
‘This is forcing a growing number of tenants to look further afield for cheaper accommodation. As a result we are seeing migration out to the periphery of prime central London, to zones two and three where rents are significantly lower than the prime core,’ she added.
Average rents in the Isle of Dogs are currently £331 per week, less than a fifth of average rental values in Mayfair which are currently £1,744 per week.
The report also says that house price growth in prime central London continues to be bolstered by the supply drought, resilient domestic and international demand and the relative weakness of sterling.
Values have increased by 2.3% in the first quarter, reaching a new historic high, with buyer demand expected to grow as cheaper debt finance becomes increasingly available. This growth in capital values is also driving buyers to fringe locations in search of better value for money, the firm says.
Cluttons has upgraded its forecast slightly for house price growth in prime central London to 5% this year, with increases of close to 4% per annum expected between 2014 and 2018.