Prime central London rents fell by 0.4% in July

• In Prime central London rents have fallen by 2.7% annually but they remain 21.3% above their financial crisis low

• The number of applicant viewings is up year-on-year, by 6.8%

• Rents for properties in Marylebone, Kensington and Belgravia have risen in 2013 by 1.7%, 1.6% and 0.1% respectively

• Rents in prime central London declined again in July, but despite recent falls, they remain 21.3% above the low point they reached in June 2009. 

Rental performance has been weaker for larger and more expensive properties, with greater resilience being displayed at the more “affordable” end of the market.

Over the past month rents have fallen more for houses than for flats, with a -0.6% and -0.3% decline respectively.

Rental falls have also been more notable in the £1,500+ per week bracket than in the £500 to £1,500 per week bracket this year.

Despite the ongoing decline in rents, activity levels across the prime central London rental market remain buoyant this year.

The volume of tenancies agreed over the year-to-date is 32% higher than in 2012.

Additionally, the number of applicant viewings is up this year, by 6.8%. This increase in activity reflects a broader shift in favour of the rental sector across the UK, due in part to the lack of mortgage market funding for new entrants in the owner-occupier market.

The main factor weighing on rents, especially at the top end of the market, continues to be the health of the London economy.

The ongoing Eurozone crisis has put downward pressure on growth, confidence and recruitment in the city.

Data from financial sector recruitment specialist Morgan McKinley indicated that in the three months to July 2013 there was a gradual rise in job availability month-on-month. But, while this is positive news, it is worth noting that job opportunities remain at a lower level than the same period of 2012.

While the headline figures confirm that rents continue to fall, we are seeing differing price performance across areas. Rents in Mayfair have declined by 4.2% since January. In St John’s Wood and Notting Hill average rents have also slipped in 2013 by 3% and 2.1% respectively.

In contrast, rents for properties in Marylebone, Kensington and Belgravia have risen so far in 2013 by 1.7%, 1.6% and 0.1% respectively.

Our view remains that it will be 2014 before we see more robust rental growth, however this will require a sustained improvement in central London job creation.

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.