2008 RECORD TURNOVER, FALLING RENTS

Residential rents continued to fall in the second half of 2008 due to unprecedented fallout from the financial sector reported in the Market Overview. This was not due to lack of demand, which in Midtown and City was at record levels, but rather to over-supply of units due to the near cessation of the sales market. This trend was repeatedacross other central London locations. As a result, residential rents fell by an average of 5% across Midtown, City and Docklands property in the second half of 2008, compounding an average loss of 4% in the first half of the year (Figure 3). Rents were down by 9% on average for 2008, the first time rents had fallen since 2003. As seen in the sales market, there were important variations across the three sub-markets reflecting their different supply and demand profiles:

• Docklands (E14) – rents down 15% in 2008 – limehouse Property
• City (EC) – rents down 8% in 2008 – Islington Property
• Midtown (WC) – rents down 5% in 2008 – Bloomsbury Property

In September and October 2008 we took on additional staff in our lettings offices to deal with the burgeoning demand for rental accommodation in Midtown, City and Docklands. These months are always the busiest of the year for lettings, but in 2008 the volume of new tenancies and renewals was at record levels, with both Midtown and City tenancy turnover up 50% on 2007. In Docklands turnover was maintained at the previous record level set in September and October 2007.

As a result we saw little evidence of reducing rents during these two months, but over the six months as a whole supply exceeded demand, and rents fell particularly in the final quarter. Overall, demand for rental property increased during 2008 as it became increasingly difficult for first-time buyers to secure mortgages for their first home. The banking crisis meant that individuals and couples with no mortgage track record and with a low proportion of equity to value were unlikely to be able to secure loans. Lenders were
also mindful of the future fragility of the employment market, but it was only at the end of 2008 that London began to see major job losses in the financial sector in the aftermath of Lehman Brothers.