The story that is rarely heard in discussions about London’s housing markets is that there has been no inflation in rents for Central London residential property. Rental values have been broadly flat for the past two years.
This is not for want of demand. Rather, it is the result of an increase in supply. The expanded supply of properties to rent across City, Midtown and Docklands, has three main sources:
• newly developed apartments that are sold to investors – often, though by no means always, overseas investors,
• investors in the second hand market, more often of UK origin and planning to substitute or supplement pension income,
• and an expanding stock of high-quality, purpose-built, student housing.
These three sources have significantly expanded the supply of privately rented stock at AST level, increased choice for the consumer and held rental values at fairly constant levels since 2011. This confounds many of the sensational reports suggesting that rents have been rising.
The seasonal peak in the rental market, which regularly occurs in the late summer, has been smoothed out in 2013. It was evident but muted. Demand for homes to rent has been far more evenly spread throughout 2013.
BEDFORD COURT MANSIONS WC1 – THREE BED FLAT LET AUGUST 2013 £920 PER WEEK
Table 4 shows current rental values for one and two bed apartments in our core markets. The cost of renting in the City has declined in 2013, which we attribute to its relative immaturity as a residential market compared to Midtown. Supply has increased as new stock has been added and it has greatly increased choice for tenants.
Rental values in the City slipped to £425 per week for a one bedroom apartment – on a par with Midtown but lower than they had been for the past two years in the City.
In Midtown, rents for one bed apartments slipped to £425 per week, from £450 at the middle of year, putting them back where they began in January and at the same level as they were in January 2012. It was a similar story in Docklands where a modest increase in 2013 simply brought rents back to their January 2012 levels.
KIRBY STREET EC1 – TWO BED FLAT LET SEPTEMBER 2013 £1,400 PER WEEK
For two bed apartments, there was a small increase in Midtown, no change in Docklands and a decline in the City. Midtown rents rose by 5% in 2013 whereas in the City, rents fell by 9% and ended the year 12% lower than they had been in January 2012. There was a more modest downward adjustment in Docklands where, after falling 6% in 2012, they remained stable in 2013.
For the time being, there appears to be a ceiling on rental values – which we attribute to affordability – above which, many tenants decide to move further away from the centre of London, to get better value, in the form of a lower rent, or a larger space. It is interesting to note that the rent of a one bed apartment in Midtown or City would be enough to secure a two bed apartment in Docklands.
These broad trends do mask fluctuations as stock waxes and wanes. In Docklands for instance, Q2 was particularly quiet and the summer began with a discernable excess of supply over demand (otherwise known as choice for the tenant) but it was gradually absorbed and by the end of October, stock was limited and the rental value of a one bed apartment values crept up from £340 per week to £350 while two beds remained at £425.
Equally, new developments coming to the market, can have a substantial impact on the performance figures in any given period. Given a choice, most tenants prefer to rent a brand new apartment with its pristene kitchen and bathroom fittings. These invariably attract a premium.
The majority of tenants signing new leases through our offices in 2013 were from overseas. This is perhaps unsurprising given that overseas citizens are more likely to be working in London on a temporary basis. London is an international business location and its workforce is drawn from across the globe. 37% of the tenants were from Europe and 12% from Asia.
By far the largest occupation group was the financial sector, which accounted for 43% of the tenants in 2013 and only 9% in TMT – showing that the fashionable and much discussed tech sector is still dwarfed by the established financial sector in our markets. Students were the second most active occupation group, making up 30% of the tenants in 2013. Student activity fluctuates with the academic year and in the first half of 2013 they made up only 14% of tenants.
WEST INDIA QUAY E14 – ONE BED FLAT LET JUNE 2013 £500 PER WEEK
Check out tenant profiles in tomorrows post!
Telephone: 020 7250 1012
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