Rental Market – Year End 2012
TENANTS PREPARED TO RELOCATE IN SEARCH OF VALUE
The impact of the Olympic Games on the rental market was, in the end, less dramatic than many observers expected and more muted than many owners might have hoped. Nevertheless there was an impact, particularly in Docklands, where values rose in the middle of the year and fell back again in in the autumn. The price wave was caused by owners restricting the supply of rental property in the lead up to the Games, in the hope of benefitting from a windfall boost in rental values and then returning stock to the market in September. Elsewhere, only a small proportion of the stock was affected and the impact on value was minimal.
There is normally an influx of prospective tenants in September as new graduates enter the job market and students return for the new academic year. This year was no exception and there was the added pressure of tenants who had hung back from agreeing new tenancies in the pre-Olympic period to avoid fixing rents at inflated values. However, whereas the seasonal influx would usually cause rents to rise, this did not happen in 2012 and this can be explained in part, by the Olympics. The autumn increase in demand was more than matched by the volume of stock returned to the market after the Games, which meant that rents remained broadly stable or, in the case of Docklands, fell. By the end of November, the surplus supply had been mopped up in time for the quieter period between November and January.
Over the year as a whole, there was little change in the rental values of one bed apartments in City or Midtown. In Docklands, rents ended the year lower than they began, despite peaking during the summer. Generally, the market has been stronger for one bed than two bed apartments.
Rents for two bed apartments that had dropped in all three submarkets at the half year stage rebounded in the second half of the year. Despite this recovery in the later months of the year, rents in the City and Docklands still ended the year down on 2011 (table 4).
The rental market is highly responsive and values had become overinflated during 2011. There has been an adjustment in 2012.
One symptom of this adjustment was a significant increase in the incidence of tenants ending their tenancies at the earliest opportunity and a consequent reduction in the average length of tenancy from 30 months to 24. This was common in Midtown and City and was, in our view, prompted by a price-conscious tenant-base, taking the opportunity to adjust to the new market rent, or to relocate to lower cost areas.
Perhaps tenants were reacting to more difficult economic conditions, or simply recognising that rental values are significantly lower in other parts of the capital. People in rented accommodation are inevitably less committed to a location or building than owner-occupiers – and so the rental market is more fluid and therefore more reactive. We do not however expect any further downward adjustment in rents in 2013.
2012 has seen the emergence of a high-end residential market in the City, with rental values of £900 to £2,000 per week for larger homes no longer uncommon. Our records suggest that there has been a 3-fold increase in the number of new tenancies agreed in this price band. There is no such thing as a typical profile but the sort of characteristics that would command this level of rent are: a floor area of more than 1,200 sq ft; a height premium and/or a volume element (warehouse) and an outdoor terrace. Whereas in the past, tenants with generous budgets would have sought out houses in Notting Hill,
St John’s Wood or Kensington, today they are keen to be in and around the City. We have also noticed a growing willingness amongst owners of larger residential properties around the City to consider renting out their homes.
Docklands has a robust supply of rental stock and it serves a useful role in offering a well priced alternative for those wishing to rent within easy reach of Central London. In our experience however, most of those renters look westwards when they wish to buy, or relocate when considering schools for their own children.