Private property rents rising fastest in south London, new report suggests

Despite all the headlines about prime central London’s house price growth and the regeneration of east London, rents have risen fastest in south London over the past three months according to new research.

Rents in Greenwich have increased by 11% over the last year while in nearby Bermondsey, Southwark and the South Bank, rents increased by 9%, far outpacing almost every other part of London, says the latest residential lettings research from Benham & Reeves covering the third quarter of 2013.

It says that vast swathes of north London including family favourites like Muswell Hill and Archway saw no increases at all and the N7 area of Islington actually saw rents fall. Rents also fell in Westminster while in Kensington rents increased by less than 1%. Only Knightsbridge performed strongly with increases of just under 3%.

A mixed picture emerged in the trendier bits of east London with Shoreditch showing no growth at all. Victoria Park, Bow and Canary Wharf showed only modest increases despite a number of sought after developments being built in these areas. London Fields, which has historically had a strong rental market, continued to perform well, though, with increases of over 6%.

Investors in search of up and coming areas would have performed best in the two other areas of central London tipped for growth, namely Bayswater with a 6.2% rental increase and the King’s Cross area with a 8.2% rental increase.
‘Greenwich’s growth isn’t a huge surprise to us. It is a beautiful part of London with great transport links to the City and Canary Wharf. Until recently, it has mainly been viewed as a part of London that is great for families but with a number of new developments being built around the Greenwich Peninsula area, younger people are now flocking to the area,’ said Marc von Grundherr, director of Benham & Reeves residential lettings.

Meanwhile, a new report from social finance and independent think tank the Resolution Foundation, says that building and renting to lower income families can provide attractive returns for big investors.

A low risk income return of 4.7% should be achievable for institutional investors putting money into the private rented sector, says the report which identifies a £140 million property portfolio, made up of almost 800 rental homes around the country which are already being built or planned by not for profit housing providers.

It shows that it should be possible to achieve a 3.9% return on incomes alone, rising to 6.5% or more on total returns which include both income and rising capital values, at modest inflation. By selecting developments with the highest returns and managing them more efficiently, the income return could be pushed up to 4.7% and the total return to 7.3%.

At the same time, the project demonstrates that in every region of the country, not just London, there are areas where this model can provide good quality rental homes to families on restricted incomes as low as £22,000 a year in the case of a couple with one child.

The findings provide the first economically watertight demonstration that large-scale investment in building private rentals can be profitable enough to make it attractive to fund managers looking for a competitive and predictable return on their money.

The report suggests this could kick start a market in build to rent which has yet to take off in this country. In Britain, most private rents are still offered by small scale buy to let landlords, a contrast with the United States and many other parts of Europe where institutional ownership of private rentals is common.

Britain has 3.8 million households in private rented accommodation, of which a third are families with children. The proportion of households living in the private rented sector was 17% in 2012, up from 10% in 2001 and many tenants have difficulty finding rentals which are affordable and secure.

‘A private rent is the only housing option for a growing number of people who can't afford to buy property yet don't qualify for social housing. We urgently need more affordable options in the private rented sector, and drawing in large scale commercial investment would help to build some of those new properties. This study shows that it's possible to guarantee investors a good return while giving tenants better quality, more secure, affordable housing,’ said Vidhya Alakeson, co-author of the report and deputy chief executive of the Resolution Foundation.