Prime London rents remain static over last year

Prime London rents struggled to show any significant growth in the second quarter of 2013 given a lacklustre employment market in the financial and business services sector and rising levels of available rental stock in the wake of a rise in overseas investor buying activity.

This has meant landlords, keen to minimise void periods in order to protect their income returns, have had to remain realistic about their rental aspirations.

The effect has been most noticeable in the markets of prime central London, Hampstead and St Johns Wood, where annual rental movements are currently in negative territory.

Lonres have reported that stock levels of three and four bedroom properties in these areas have increased 16.8% and 11.9% respectively over the past year. That stock increase reflects an increase in new build supply brought to the rental market and an added incentive to those who hold their property in a corporate structure to let it on a commercial basis, following recent changes in the tax regime.

Only in the ultra prime markets, where supply is more constrained and demand is dominated by very wealthy international tenants have rents in the prime markets of central London risen, though they remain some way below the peak levels seen in 2008.

By contrast, though subdued, rental growth has remained positive in the more domestic markets of prime South West London and Islington. Lower corporate budgets have displaced demand for family houses from central London into these less expensive markets, supplementing demand from a broader tenant profile.

In the prime East of City, rents have fallen marginally over the past year, having previously exceeded their 2007 peak. Here, where student and sharer demand is more dominant, there are signs of renewed development activity that is likely to result in more rental stock coming to the market.

Prime South East

In contrast to London, rents in the prime markets of the South East rose by 1.8% in the second quarter of the year. In particular, prime towns within the commuter belt of the capital have attracted young families wanting to rent before committing to buying into the commuter lifestyle. Amongst these, Guildford saw the largest quarterly increase of 4.3% due to its strong family market.

These are encouraging signs for the prime regional housing markets, where demand for both buying and renting amongst those relocating from London has struggled to gain momentum since the downturn. Here, however, accidental landlords continue to influence the amount of stock available to rent meaning landlords need to be realistic about rents, which remain someway down on their pre- crunch levels.