Lack of homes to rent supporting growth in London lettings markets

A scarcity of lettings stock is supporting rental growth in the prime property market in London, but high levels of renewals resulted in fewer new lets in the second quarter of 2019.

The LonRes prime London lettings index recorded a 2.3% rise in achieved rents in central London, a 1.4% increase in prime fringe, and a 0.9% fall in prime London overall compared with the second quarter of 2018.

The data also shows that 34% of properties let had a rent reduction before securing a tenant, down from 39% in the second quarter of 2018 and 47% in the second quarter of 2017.

In the prime central London market the average rental value in the second quarter of 2019 stood at £50 per square foot.

Looking ahead, 50% of respondents to the LonRes agent survey expect rents to rise over the coming 12 months while 5% thought rental values would stay the same and 15% expect them to fall.

The report also reveals that gross rental yields have been increasing annually since the fourth quarter of 2017 across the three prime areas. Over the past five years rents in prime central London have risen 6% while house prices have fallen by 13.4%.

Demand from prospective tenants is rising. Some 47% of respondents to the survey reported an increase in applicants registering in the second quarter of 2019 while 13% saw a fall, compared with the first quarter of the year.

Properties priced at £1,000 per week or below were most in demand while agents reported less interest for homes priced at £3,000 per week or more.

Stock remains scarce. In the second quarter of 2019 new instructions across the three prime areas fell 4.3% compared to the second quarter of 2018 and compared to the second quarter of 2016, new instructions have fallen by 22.9%.

New lets agreed over the first three months of 2019 fell 12% compared to the same period a year ago. In prime central London they were down by 3%, in prime they were down 11% and in prime fringe by 20% compared to 2018.

‘This year, with a Tory leadership contest and Brexit negotiations stalled, many would-be movers could have postponed their decision to transact. In some areas they did, yet in prime central London more properties changed hands this year than last, with sales up 3% on the second quarter of 2018,’ said Marcus Dixon, head of research, LonRes.

‘In the lettings sector, agents reported an increase in demand this quarter. This, coupled with an ongoing lack of stock, meant rents rose again this quarter, up 2.3% on the same three months last year. But, with renewal rates remaining high, less stock came back to the rental market, resulting in another fall in the number of new lets this quarter,’ he added.