The prime rental market

Beyond London, the prime rental market is largely confined to the high value suburban markets such as Elmbridge, Rickmansworth and Northwood, and areas within a 30 minute commute to London such as Sevenoaks, Guildford and Beaconsfield. Beyond that, the prime rental market only extends to specific high value urban markets such as Cambridge, Winchester and Oxford.

These markets are able to draw on a pool of demand from those relocating from London and/or commuting on a regular basis. They also attract international tenants in a way that other prime markets beyond those locations cannot.

This is reflected in the rental values commanded by these markets. Prime rental levels vary from an average of £18 per square foot in prime suburbs, to £14 per square foot in the outer commuter zone (around an hour from London). In locations such as Elmbridge, this figure can be as high at £20 per square foot with exceptional properties achieving £30 per square foot.

Recent rental growth

The best performing prime location in terms of rental growth is the suburbs, driven by a high number of tenants moving out from London. Over the past year, rental values have increased by an average of 4.5% and are now 1.3% above their 2008 peak.

The inner commute is a more varied picture. Annual rental value movements range from +8% to -8% depending on a number of local factors. Good schools play a significant role in rental values, as does proximity to public transport and the London station they connect to, which can impact different employment markets.

A higher proportion of tenants in these markets are moving from within the local area when compared to the suburbs. Nonetheless, tenants relocating from London still play an important role in this market, accounting for 23% of the total.

Further out in the commuter zone, the picture is more consistent, with rents increasing by 2.9% over the past 12 months and the highest growth seen in the urban locations. A similar trend of outperformance is seen in the sales market, indicating demand in these locations from potential buyers new to the area who want to ‘try before they buy’ and rent first.

It is perhaps surprising in these prime locations that there is increasing demand from international tenants, who account for 28% of the market; this is up from 21% in 2012. North Americans are the largest international tenant group, accounting for 10% of the overall market and yet they rarely go on to buy in the UK, preferring to stick to the rental market.

Size matters

There is a clear correlation between size and rental growth. Since the peak of the prime rental market in 2008, 3 bed properties have seen the strongest growth with average rental values across the prime commuter zone now just -1.7% below their peak.

Taken from
Spotlight: Prime Rental Markets - January 2014