Back to rental
Sun 29 Mar 2015
As sales in the capital slow to a standstill, the lettings market is gathering steam. Demand has never been higher, says Martina Lees.
No one really wants to admit it, but the lustre has gone from the capital's sales market. For all the action - whether it's super-rich drama at 50,000 a week in Belgravia or waiting lists for sleek Kilburn new-builds at a hundreth of that price - look to lettings.
The number of prime London sales in January and February is down 29.1% on a year ago, according to Lonres figures analysed by Dataloft, but the number of prime properties let has risen by 8.3%. The most dramatic increase is at the upper end; 123 homes have been tenanted at 2,000 a week or more in the past two months, up by 29.5% year on year. At 819 a week, average rents achieved so far this year in the capital's 13 prime postcode districts are 8% higher than for the same period in 2014. "The lettings market thrives during uncertain times, as it gives greater flexibility," says Lucy Morton, head of the central London estate agency WA Ellis.
Demand for lettings in the capital is at an all-time high, and is part of a longer-term trend. The number of private renters in London has increased by 75% over the past decade, according to exclusive research by CBRE, the commercial property services and investment firm. Its report, launched today and entitled "London's growing market; the rental revival", says 247,000 households in the city have started to rent privately in the past year alone. Rents were up in every borough last year, led by the City of London (15%), Croydon (12%) and Greenwich (11%); the hotter markets were in the south and east.
The main driver is affordability. Since the financial crisis, the requirement for 20%-25% deposits on low-rate mortgage deals has seen the number of first-time buyers fall by half, from about 465,000 a year to 224,000. "In the past decade, the percentage of 25-34 year olds who are owner-occupiers has fallen from 57% to 36%, the report says. "In contrast, the share of renters in this age group has doubled from 24% to 48%."
This has created a breed of young "lifestyle renters" with middle to high earnings, who enjoy the mobility and freedom of renting. They are willing to pay a rental premium of up to 40% for new-build stock compared with second-hand properties, the CBRE found.
Hamptons International estate agency recently had offers at the asking rents on two new-build flats in Kilburn Park, a development right in the eponymous Tube station in northwest London, before their glass walls and glossy white kitchens were even finished. It now has a waiting list for two-bedroom flats in the block, where rents range from 365 to 495 a week, according to Kate Eales, the agency's regional director. "We've had the best lettings start to the year in half a decade".
Yet it is caution, rather than frenzied bidding wars, that is driving up rents. There are the cautious buyers who, wary of Labour's proposed mansion tax, are holding off 2m - plus purchases until after the May 7 election. Many are frustrated by the lack of sales stock on the market. "They just can't find what they want, so they rent instead, at more than 5,000 a week," Morton says.
At the top end, several have gone down the "try before you buy" route of renting with an option to purchase. In the past, such clauses simply amounted to having first refusal in tenancy contracts, but now they are more binding over dates and prices, says David Mumby, head of lettings for Knight Frank estate agency in South Kensington. "In January, we had European nationals agree to rent a seven - bedroom house with staff accommodation on one of the prime squares in Belgravia for more than 50,000 a week, with an option to buy in the next six months for about 70m."
In another case, Malaysian tenants fell in love with a five-bedroom house on the The Vale, a sought -after street in Chelsea, which they were renting for more than 11,000 a week. They bought the newly developed property for about 13m late last year.
Caution is boosting corporate rentals, too. Jonathan McCormack, lettings manager at Kinleigh Folkard & Hayward estate agency's Bayswater branch, has seen a change in attitude among the employees of global companies and embassies.
"With many of these people based in London for only a few years, they are more inclined to rent than to buy. We recently let a five-bedroom house in Hyde Park Square to an embassy for five years, which shows the long term view of organisation on housing their employees."
That doesn't mean there is a blank cheque for corporate lettings, says Jo Eccles, managing director of Sourcing Property. "We work with a lot of companies where we handle the relocation of their staff, and we've definitely noticed them reining in the budgets. Even where we've advised that the allocated budget is quite tight, companies are taking a fairly hard line."
WA Ellis reports a rise in high flyers hutching up at 800 to 2,000 a week. "Clubbing together to rent a better property than you could afford on their own is becoming a lot more popular at the high end," Morton says.
Then there are the cautious tenants, and cautious landlords, who opt for the certainty of longer leases. "This means less property is returning to the market, leaving less available stock for new tenants to choose," says Graeme Young, lettings director for brook Green and Askew Road at Marsh & Parsons estate agency. It saw an 8% increase in the length of new tenancies last month, compared with February 2014.