The decline in annual rent growth in the prime central London property market moderated in January with values now 5% below were they were at the beginning of 2016, the latest analysis report shows.
However, the report from international real estate firm Knight Frank also shows that rents in this sector have been slowing since May 2015 and this was partly due to high levels of stock available to rent.
Now the report suggests that a fall in supply could help halt the downward trend. Indeed, while there was a 12% year on year rise in new rental properties in the final quarter of 2016, that figure was lower than the increase of 30% recorded over the first nine months of the year.
Tom Bill, head of London residential research at Knight Frank also pointed out that the fact landlords face a less favourable tax environment from April has contributed to the slowdown in supply to some degree.
‘However, demand continues to strengthen, particularly at the higher and lower end of the prime central London market,’ he added.
The report says that above £5,000 per week, in the so-called super-prime section of the lettings market, demand remains strong among tenants who are uncertain over the short term trajectory of pricing in the sales market.
The number of super-prime deals rose 5% in 2016 versus 2015, LonRes data shows and activity is also relatively stronger below £1,500 per week.
The report also shows that the number of tenancies agreed across prime central London was 20% higher in the final quarter of 2016 compared to 2015 and Bill explained that this puts upwards pressure on rental values.
‘For rental properties between £1,500 and £5,000 per week, activity is improving but remains comparatively slower. The primary cause is that budgets for senior executives at financial institutions have been reduced due to the wider mood of economic uncertainty,’ he pointed out.
‘While the UK’s decision to leave the European Union has raised some questions over the status of London as a leading global financial centre this trend for greater efficiency pre-dates Brexit and relates to the increased regulatory pressures on banks as well as a low interest rate environment that curbs profitability,’ Bill added.
Andrew Breach, head of financial services at executive search company New Street, who is in regular contact with senior bankers in London and Europe, confirmed that the major banks were already streamlining their operations.
While he expects Brexit to accelerate this process, he believes the impact should not be overstated. ‘London has shown over the centuries that it is resilient and flexible enough to remain the number one or number two financial centre in the world. The plan will be to retain as many staff in London as possible but I would anticipate somewhere between 10% and 20% of staff could be affected, although it depends a lot on the negotiations,’ he said.
‘There are also practical barriers to moving large numbers of staff away from London. A bank can announce that it plans to move 1,500 people but it may only end up moving 500 because not everyone will want to uproot their life. Also, these are people with 10 or 15 years’ experience who cannot easily be replaced, which could lead to staffing shortfalls in Europe, Breach explained.
‘Compliance and risk is one of the hottest markets in London for staff at the moment but you can’t suddenly create that sort of knowledge elsewhere, and these are people that banks must have,’ he added.
