The FINANCIAL -- Liam Bailey, Head of Knight Frank Residential Research comments: “The
central London residential lettings market has been enjoying a quiet
boom over the past 18 months.
Demand for accommodation from a recovering financial and business services sector is high, and supply of accommodation has been weak, with potential supply leaking into the sales market as owners look to capitalise on near record prices.
“Firm evidence of the ongoing strength of London’s prime rental market is presented by the fact that rents rose by more than 25% since June 2009. This reflects a huge improvement since mid-2009, when the market was suffering from massive oversupply and weak
“With rents now marginally above their March 2008 peak level we still see scope for 5% to 10% rises in rents during 2011.
“Aiding the growth in rents is the fact that the volume of available rental properties has fallen considerably, by almost 18% in the 12 months to April this year, compared to the previous 12 months.
“Demand from tenants has held relatively firm, set against this weakening of supply. The reason for this resilience in tenant demand relates to the fact that employment conditions in central
London are much healthier than they were 18 or even 12 months ago. Morgan McKinley, the City recruiter, reports job vacancies have increased by 27% over the past year.
“Limited stock means that there are a large number of prospective buyers who are still locked out of owner-occupation and renting is their only alternative. While central London sales are outperforming the UK market, even here sales volumes over the past 12 months have been a third lower than they were in 2007.
“There is no evidence so far that rental supply is rising. While high-profile sales of new-build developments to Asian investors are taking place, the reality is that for all the noise from this sector, we are talking about scores rather than hundreds of new prime market units in central London. There simply aren’t enough new units coming out of the ground to have anything other than a local impact in terms of depressing rental values.
“As long as the mortgage market in the UK remains in its current parlous state, the volume of equity-rich investors is sufficient to be able to compete successfully with prospective owner occupiers, pushing more would-be buyers into the rental sector. This is one reason why the £400 to £1,000 per week rental sector is particularly strong in terms of tenant demand across London.”