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East London leads residential rent increases in the last 12 months

Average rents grow by nearly 40% in Newham over last year, the largest increase across all London boroughs, new research from property consultants CBRE reveals.

Average rents in Newham rose by 39% to nearly £1,700 per month. The borough came ahead of the City of London, which recorded strong growth of nearly 32%, partly reflecting a small number of exclusive new penthouses which raised the overall average.

Rents have also grown significantly in other east London boroughs, including Redbridge up 28%, Greenwich up 24.1% and Tower Hamlets up 18.5%.

CBRE says that this growth has had a noticeable impact on rental yields, as average house prices have not increased at the same pace. Newham now offers residential investors a return of over 9% and currently tops the table for rental yields across the Capital.

In terms of yields Newham also tops the league with 9.2%, an increase of 32%, followed by Redbridge with an increase of 40% taking it to average yields of 8.5%. Barking and Dagenham has an average yield of 7.9%, but this is down 3.3% on a year ago.

Greenwich has also seen a substantial increase with an average yield of 7.8, up 28.5%. Waltham Forest has 7.4%, up 4.8% from a year ago.

‘The rise in average rents in east London reflects the improved desirability of the area as a destination. This has inevitably had a positive impact on rents. A large number of new residential schemes have come to market over the last few years, and renters can now choose from a raft of high quality developments,’ said Jennet Siebrits, head of residential research at CBRE.

He pointed out that regeneration in Newham, accelerated by the Olympics, has bolstered the rental market by improving infrastructure, increasing jobs and delivering a raft of new cultural and sporting facilities, which is anticipated to increase the area’s appeal for young professionals. Newham houses the youngest population in London, with 41% of residents under the age of 25.

‘Redbridge, which not only saw a significant increase in rents but also recorded the highest growth in yields of 40%, has been earmarked as a future destination for Crossrail improving its desirability for city workers. Moreover, it hosts several significant sources of local employment, such as Bombardier and Barnados,’ added Siebrits.
Meanwhile, the latest Residential Lettings Survey from the Royal Institution of Chartered Surveyors shows that the cost of renting a home in the UK has risen by over 4.3% in the last year as many would be buyers continue to find themselves locked out of the sales market.

Given the problems affecting the sales market, perhaps unsurprisingly, RICS says that this trend looks set to continue as respondents also predict rents to continue to grow by 3.9% over the next year.

The upward march in rents continues to be underpinned by a shortage of good quality properties for tenants to move into. In the three months to July, the amount of new properties coming on to the market was little changed compared with the preceding period; a net balance of 2% more surveyors reporting falls in new instructions to market.

Meanwhile, demand continues to grow, albeit at a much slower pace than in recent quarters, as 4% more respondents reported rises rather than falls in interest from potential tenants.

Significantly, the increase demand has outpaced the change in supply in every quarter since the first half of 2009 although the gap does now appear to be narrowing.

Across the country, strong regional variations were apparent. The North West saw rents increase by the biggest margin with values growing by 6.9%, whereas surveyors in Wales reported that rents had in fact stayed at the same level over the last twelve months.

Unsurprisingly, with rental values steadily increasing, gross yields have continued to edge upwards during the early part of the year, which has contributed to fewer landlords, 3.3%, opting to sell their properties at the end of the tenancy.

‘It is interesting to see that the huge growth we have seen in demand in recent years has started to gradually slow. While tenant interest is still riding high, what remains to be seen is whether many are willing to meet the increasing rents being demanded by landlords,’ said Peter Bolton King, RICS global residential director.

‘However, it is clear that we have seen rents grow steadily right across the UK for some time. This is partly down to the problem of the scarcity of mortgage finance and the large deposits required by lenders. These barriers to home ownership need to be addressed alongside the shortage of new stock coming to the market,’ he added.