Our latest Market in Minutes Prime Lettings publication explores the prime rental markets of London and south east England. Download here.

Prime London

Rents across prime London saw marginal falls over the year to the third quarter of 2013, continuing a period of lacklustre rental growth seen since mid 2011. This is largely due to an increase in prime rental stock and a constrained employment market in the financial and business services sector.

However, this is not a one size fits all market. Locations beyond the more expensive central locations have seen stronger growth as tenants are looking for value and are increasingly willing to expand their search to locations they hadn’t previously considered.

This is particularly apparent in south west London, which saw the strongest annual rental growth as families, corporate relocators and sharers alike are attracted to the area for the value and space they can attain. Families in particular, are increasingly interested in the property rather than the location and are prepared to move further out to achieve this.

In comparison, rental values in prime central London (PCL) and prime north west London in particular, have seen the biggest falls over the past year as corporate relocation budgets are cut and the number of properties available to rent has increased.

This rise in rental stock is partly on the back of the recent changes to the tax system encouraging those who hold their property in a corporate structure to let it on a commercial basis as well as an increasing number of overseas investors buying properties to let out.

The strongest rental growth over the quarter was seen in the prime east of City markets, although annual growth remains modest at 0.1%. This was driven by strong demand over the summer from corporate, students and sharers and a current lack of stock on the market in these locations has resulted in tenants chasing what is available.

South east of England

In the prime south east of England, rental values have performed in line with the London market seeing marginal falls over the third quarter of 2013.

The regional rental markets are experiencing a downward pressure on rents due to the fact that there is a wide choice of properties available but there is a shortage of applicants especially at the higher end of the market which has been the case for most of 2013.

Prospects for rental growth

• Rental growth across the residential markets of Greater London as a whole is likely to be relatively strong, driven by demand from employment and those unable or unwilling to enter the world of homeownership.

• In the mainstream markets supply is likely to remain constrained, but less so in the more valuable markets where new activity is concentrated and overseas investors are particularly active.

• Therefore we expect rental growth prospects in the prime markets of central London are likely to be more suppressed in the short term than we have previously anticipated. Equally, the current reliance of the PCL rental market on the financial and insurance services sector is likely to temper rental growth in the near future.

• However, there is evidence that the tenant profile is widening as the number of tenants renting in PCL and working in the financial and insurance sector has fallen from 55% in 2011 to 46% during the first half of this year.

• Furthermore, we have seen an increase in the number of applicants per property over the summer compared to the same period in 2012 giving weight to our prediction that rental growth will return to the PCL market in 2014, albeit slowly.

Taken from
Market in Minutes: Prime Lettings Q3 2013