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Rents rise in London as demand outstrips supply

Tuesday 06 November 2018

Demand for rental property is outstripping supply with rents rising 1.1 per cent in the 12 months to September, according to Knight Frank’s latest prime London lettings report.

The data suggests the trend is due, in part, to the fact that more landlords are looking to offload properties due to tax changes, such as the phasing out of mortgage interest relief.

An increasing number of landlords have either sold or listed their property for sale, which has resulted in a decline in supply and put upwards pressure on rental values.

Separate data from Rightmove reveals that there were 7 per cent fewer new lettings listings in prime central London in the year to September 2018, compared with 12 months earlier.

The equivalent decline was 10 per cent in prime outer London. As a result, annual rental value growth has returned to prime central London and the annual declines in prime outer London are moderating.

While average rents in prime central London grew 1.1 per cent in the year to September, the annual change in prime outer London dropped by 1 per cent, which was the most modest rate of decline in two and a half years.

Knight Frank suggests that a reform to tenant fees is one recent change that may exacerbate this trend.

The firm believes that the change, which is likely to be introduced next year, could prompt more landlords to review their portfolios amid increased administrative charges.

Despite declining levels of supply and the uncertain political backdrop, the firm agreed 6 per cent more new tenancies in the year to September 2018 than the previous year.

The total annual return in prime central London, a figure that takes the gross initial yield and annual capital value growth into account, was 0.3 per cent in September.

While this is lower than some previous years, it is stronger than other asset classes. The price of gold and the FTSE 100 fell by more than 5 per cent in the year to mid-October.

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