Prime lettings market stabilising in London

Rents in the prime property market in London are unlikely to decline by any meaning full amount in the short term, according to the latest analysis of the sector.

The supply of lettings property has begun to increase in higher price brackets in prime central London, putting downwards pressure on average rental values, which fell by 0.5% in the year to July but increased by 0.5% on a quarterly basis.

But the ratio of new prospective tenants to new lettings listings rose to 6.8 in the second year quarter of 2019, the highest it has been in more than 10 years, according to the market lettings report from real estate firm Knight Frank.

Tom Bill, head of London residential research at Knight Frank said that it suggests rental values are unlikely to decline by any meaningful amount in the short term.

He pointed out that demand continues to build in prime London lettings markets due to the tenant fee ban that was introduced in June, as well as some buyers now hesitating and opting to rent due to political uncertainty

This demand is reflected in the number of new prospective tenants, which was represented by a 16.4% increase in the year to June, meanwhile the number of tenancies agreed increase by 18.4%.

In the prime outer London market rents increase by 0.2% on a quarterly basis and were unchanged in the 12 months to June 2019.

Bill also pointed out that some landlords in London who listed their property for sale in response to tax changes have returned to the lettings market after failing to achieve their asking price.

Rental values have responded to a fluctuation in supply levels over the past 18 months. ‘The number of Knight Frank offices in London recording a decline in average annual rental values has increased modestly in recent months, though the overall split remains balanced,’ said Bill.

The analysis also shows that yields on prime central London property have widened in response to stronger rental values and declining prices. The difference between the prime central London gross yield and the benchmark 10 year UK government bond was about 245 basis points in June, the widest it has been in more than 15 years.