Rents in prime property market in London forecast to rise this year

Rents in London’s prime property market are approaching positive territory, falling by just 0.1% in the 12 months to May 2018, the latest index figures show.

The figures from real estate firm Knight Frank also show that in the middle price bracket rents increased by 1%, indicating that in this sector where demand is stronger the lettings market is leading the recovery.

But, overall, political and economic uncertainty is continuing to impact on demand in London’s prime lettings market, according to Tom Bill, head of London residential research. However, Knight Frank forecasts that rents will grow by 0.5% in 2018.

It follows a 15% decline in the number of properties listed for rent in the 12 months to April as more landlords explore a sale after tax changes affecting issues like mortgage interest relief and wear and tear allowances.

The index report also shows that the number of tenancies agreed at £5,000 plus a week rose 24% in the year to April, while below £1,000 the increase was 12%.

In prime outer London, the number of tenancies agreed above £1,000 a week rose 28% in the year to April compared to a 19% increase below £1,000. It is the opposite trend to the prime central London sector and Bill said it shows demand among price sensitive corporate tenants is rising in better value for money locations in prime outer London.

Indeed, rental values are strengthening in prime outer London where levels of new supply have fallen. There were 13% fewer new listings in the year to April than the previous 12 months and while annual rents fell by 2.7% in May, this was the strongest since July 2016.

‘Despite data from Lloyds Bank showing that confidence in the UK economy ticked up in May, uncertainty surrounding post-Brexit trading arrangements and the timing of the next interest rate rise have contributed to sterling weakening against the dollar in recent weeks, reversing gains made this year,’ said Bill.

‘Strong equity markets, low interest rates and generally robust global economic growth have combined to increase IPO activity on global stock markets over the last 12 months. Financial services remains a key driver of activity in prime sales and lettings markets in London,’ he added.