Recent trends

The third quarter of 2016 saw average prime London rents fall -1.7%. This resulted in year on year falls of -3.5%, the largest annual fall since 2009.

The central London rental market has experienced the largest price falls of all the London regions, with average quarterly values down -3.0%. This leaves the market -6.0% below its September 2014 peak before the stamp duty changes were introduced in December of that year.

However, this average fall hides variation in value and size. Prime properties across London worth less than £500 per week are still seeing marginally positive annual growth and strong five-year growth of 11.2%. Likewise, smaller properties of 1 and 2 bedrooms have performed better than larger properties on both a quarterly and annual basis.

This reflects the strong demand from needs-based tenants who are more prevalent in the lower priced market. These renters are far more motivated by value than location and are prepared to move further afield to get the best price and best product. As such, fringe markets in outer prime London have fared slightly better than the more expensive central locations.

^{Source: Savills Research}

The effects of tax

The fall in rental values seen this year is primarily due to the high levels of investment activity which has brought significant stock to the prime rental market.

The introduction of the 3% stamp duty surcharge for additional homes caused a rush to complete before the April 1st deadline. This has brought high levels of supply to the market, giving tenants more choice to find properties of the best value and best condition.

We have seen a slight increase in accidental landlords in markets most affected by stamp duty, namely at the top end, as well as an increase in accidental tenants who are putting the money they would have spent on stamp duty into rent instead.

Corporate relocators still going strong

The corporate relocation market has seen significant change recently, both in budgeting and the profile of tenant moving.

More predominant now are the younger relocators – moving without families and on tighter budgets. These relocators are again more driven by price rather than location and are more willing to try fringe markets such as Shoreditch or move further afield to established prime markets such as Richmond.

Economic uncertainty following Britain’s decision to leave the EU and the potential effect on the finance industry will remain unresolved for some time to come. However, enquiries and transactions from financial employees are still positive.

^{Source: Savills Research (* Rent per week)}

OUTLOOK

Our thoughts going forward

Looking ahead, it's clear that pricing has become more important than ever. With more stock coming to the market, landlords need to be realistic to maintain demand for their property. The value of a good address alone will no longer cut it, with tenants widening their searches more and more to find the best value.

With so much to choose from, landlords will likewise need to make sure their property is presented in the best possible condition to secure tenants and prevent a long void period.