SUPPLY CONTINUES TO INCREASE
Rents for one and two bed apartments stabilised in the second half of the year, after dipping in the first half, as demand rose from corporates, students and graduates entering the employment market over the busier summer months. The market has been buffeted by fluctuating levels of supply and demand and the upshot has been a market in balance with little real change in values.
The supply of rental stock in our markets continues to expand with the completion of new apartment blocks many of which were sold to investors and further boosted by owners who chose to rent properties rather than sell at current prices. However, those increases were off-set by a loss of stock to the serviced apartment operators as more landlords have targeted short stay guests – a sector that is now an established feature of central London’s residential market.
The rental sector is still rising across the UK. In a period when capital values are not forecast to rise significantly, renting
becomes increasingly attractive, especially in blocks that come with amenities such as concierge services, gyms, private cinemas
or roof gardens that are included in the rent, while the landlord pays for services via the service charge.
In September, the Labour party announced at its Conference, an intention to reintroduce rent control if they were elected, which prompted concern amongst landlords as well as a growing number of institutional investors in the Build to rent or Private Rental Sector. ARLA expressed the industry’s view that: ‘Whenever and wherever rent controls are introduced, the quantity and quality of available housing reduces significantly, and the conditions in privately rented properties deteriorate dramatically.’
In October, the government announced a consultation on plans to improve protection for tenants and leaseholders and give them more ‘say over their agent’. It is intended to protect consumers from overpriced service charges and unfair costs and could include ‘a new independent regulatory body’.
On November 1st 2017 the Tenant Fees Bill began its journey through parliament. Once enacted, it will mean that letting agents
and landlords will no longer be able to pass on the costs of setting up a tenancy to tenants in the private rental sector, other than the rent and the deposit.
The ban will apply to costs associated with ‘making arrangements for the grant, renewal or continuance of a tenancy’ on Assured Shorthold Tenancies (ASTs) or licences. The legislation applies only in England and does not apply to holiday lets, long leaseholds, social housing, company lets or non-Housing Act tenancies.
Currently it is industry standard for tenants to cover the cost of the tenancy agreement, the inventory, reference and right to rent checks. Under the provisions of the new act these will ultimately be borne by the landlord. In future, the only costs that the tenant will be liable for are the rent, a refundable security deposit of no more than 6 weeks rent; a refundable holding deposit of no more than 1 week’s rent and a payment in the event of tenant default such as late payment or breach of the tenancy agreement.
The major area of concern is if the ban includes inventory reports where costs are currently shared between landlord
and tenant with both parties given the opportunity to agree the documents. However, if the ban includes inventory costs then
these documents will become the property of the landlord and, as such, the landlord or agent will have no obligation to share them with the tenant. The inventory clerk will be under no obligation to report ‘independently’, thereby compromising the rights of the consumer as an unintended consequence.
This will give the landlord an advantage in the case of disputes and put the tenant at a disadvantage at the end of the tenancy when they will be looking for a deposit to be returned condition. Hopefully common sense will prevail and the current funding of inventory’s will be excluded from the final drafting of the legislation.
The City held its rent levels in 2017 for one and 2 bed apartments but prices in the other markets slipped by up to 11%. For larger properties, values fell across all markets and by as much as 15% in Midtown and East London. Rents per sq ft are highest for smaller apartments. One beds consistently command higher rents per sq ft than two beds and the premium over the 3 bed
apartments is substantial. The monthly outlay may be higher but the three beds are significantly better value for money – clearly attractive for professional sharers.
Long term rental growth has been modest but it needs to be seen as part of a bigger picture. Capital values have risen substantially and income is generally secure but in the last decade, rents have risen by just 5% – contrary to common assumptions.
H1 2017 TENANT PROFILES
The average age of renters always falls in the second half of the year, when students and new graduates enter, or move around the market. Over the whole of 2017, the under 25s made up just over a quarter of all rentals (twice the level in the first half of the year). Over 90% of all renters are aged under 40 and that is a consistent feature of our rental market.
The employment structure in our markets is relatively consistent, with bank and financial sector making up between 25% and 30% of all tenants, and technology and media around 10%. Student rentals are very seasonal but over the whole year represent
around 25% of all transactions, half years they made up 35%.
The largest category of renter was European in 2017, accounting for 39% of all properties let through our offices. UK citizens made up 28% – significantly lower than in the first half of the year, while the proportion of tenants from the Far East had doubled to 14%. We noted early in the year that EU citizens were more prominent. One possible explanation is that they are more reluctant to buy because of the uncertainty of their position in the UK and so rental is a more attractive option.
Singles and sharers dominate our markets, accounting for three quarters between them. Perhaps the most interesting feature is
the high proportion of singles – representing over a third of all rentals. This underlines the strength of the one bed market in our areas, 58% of lettings were to singles or couples, the prime consumers of one bed apartments. Families on the other hand,
are a rare feature.
Telephone: 020 7250 1012
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