Rising rents, long-term tenancies and strong corporate demand in London
Mon 23 May 2011
With the average age of a first-time buyer in London reportedly having reached a record 43 years old, (article) it is little surprise that the demand for rental property is surging. The usual seasonal increase in the number of tenants looking for property in spring/summer has been further fuelled by the 'would-be' buyers who are being forced to rent, either due to being unable to secure financing or because they are struggling with the lack of choice on the sales market. Meanwhile the volume of properties on the market in Central London has steadily decreased over the first four months of this year, resulting in a real shortage of rental property; in most areas, stock levels in April 2011 were down by an average of 20% compared with January.With overall demand for rental property continuing to rise against a limited supply, prices are set to continue to rise throughout 2011. Over the past 12 months in Central London weve seen rents increase by an average of 15%. The trend is the same for those tenancies that are coming up for renewal tenants are choosing to stay put due to the lack of available and affordable alternatives so the vast majority of renewals are taking place with a significant increase at all levels of the market; in April this year our specialist renewals team achieved a 25% increase on last years price for a one bedroom flat in Kensington. Rental increases of 10% or more are now a regular occurrence and will remain so whilst demand stays high and supply low in the majority of areas of London.
The corporate lettings market in particular is continuing to show signs of resurgence as more and more companies seek prime rental properties to attract and relocate senior staff to London. We saw the average budget for a mid-market corporate let rise to 747 per week by the end of March this year a 14% increase on the average budget a year ago. With seasonal growth and overall competition across the lettings market as a whole, its likely this average corporate budget could reach 925 per week by the end of June. At the very top end of the market, the number of prospective tenants searching for properties above 2,000 per week has increased by 30% in the first quarter of 2011 compared to the same period last year.
Such strong competition across the lettings market amongst tenants has meant that an increasing number are looking to 'lock-in' for longer tenancies to give them security as rents, in some areas, soar. Were now seeing two and three year tenancies becoming commonplace; in the last month, 46% of our long let tenancies in Central London have been for a term of two years or more, with an average of 12.1 months before any contractual break clause within the tenancy agreement - this is a far cry from what used to be perceived as a 'traditional' tenancy of one year with a break clause for both parties at six months. For landlords these long tenancies are also highly attractive, offering security of tenure to minimise expensive void periods. With many Londoners either being forced or choosing to stay in rental property long-term, perhaps we are seeing a shift towards the direction of our European counterparts, for whom long-term renting is, for many people, a permanent choice. As mortgage lending for buy-to-let investors begins to show signs of increasing accessibility for those with sizeable cash deposits, it seems buy-to-let in prime Central London may see a real renaissance this year as wise investors look to take advantage of the booming rental market.