Rental growth in 2014

Rents in the prime housing markets of London and the commuter zone ended 2014 1.8% and 2.7% higher than at the beginning of the year respectively. This was despite small falls in the traditionally muted fourth quarter of the year.

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Prime London

In London, the two strongest performing markets have been central London, where rents rose by an average of 3.5% and the East of City market – that encapsulates Wapping and Canary Wharf – which witnessed rental growth of 5.1%.

The performance of these two markets have meant that, as an average, rents in the prime London market have again nudged back above where they were at their peak of June 2008, prior to the collapse of Lehman Brothers.

However, there has been little consistent rental growth in this market since 2011. Over the past three years as a whole, prime rents in the capital have only risen by 1.2%.

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These headline statistics mask the fact that growth continues to be stronger for smaller properties, with prime one and two bedroom units delivering annual rental growth 
of 3.1% and 2.7% respectively. 
By contrast, properties of five or more bedrooms saw rental falls of 1.0% over the year, meaning that rents are now 3.0% below where they were three years ago.

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This reflects a relatively weak employment market in the financial and insurance services sector. Oxford Economics indicates that such employment in the City of London, City of Westminster & Tower Hamlets has fallen by -0.9% in the past three years.

In these key employment locations much stronger employment growth has been seen in the professional, scientific & technical (+20%) and information and communication sectors (+21%).

However, in these sectors corporate budgets have been lower and brought more demand for smaller units, which has also been boosted by demand from those affluent professionals unable to buy in their preferred locations because of the competitive sales market, particularly in the first half of 2014.

Taken from
Spotlight: Prime Rental Market - January 2015