Rents in prime central London are falling as job losses bite in the City – but despite this, more rentals are being agreed as would-be buyers become tenants instead.
According to Knight Frank, rents fell 0.5% last month, taking the annual rate of decline to 2.7%.
News that UBS is to cut up to 3,000 jobs in its London offices, combined with similar moves by Credit Suisse and Deutsche Bank, mean the downward trend is likely to continue, says Knight Frank.
Affordability is a central issue for tenants at the moment, as demand fails to keep pace with supply. Unsurprisingly, this is most evident in the £1,000 to £2,000 per week bracket due to the fact that mid-level City jobs have been most affected by cutbacks.
The strongest part of the central London rental market remains the lower price ranges, with average rents in the £500 to £1,500 per week bracket down by only 0.1% in the three months to October, compared to a decline of 1.2% in the £1,500-plus per week bracket.
Despite the weakness of the headline rental statistics, overall letting volumes are up strongly, with an 18% increase in the volume of tenancies agreed over the three months to the end September versus the same period in 2011.
Tim Hyatt, head of residential lettings, Knight Frank, said: “There are two contributing political factors that could provide a useful guide to the London lettings market in the next few months: firstly, speculation around Government policy is dampening £2m-plus property sales and will inevitably lead to an increase in high-level rentals as potential buyers decide not to commit while there is so much political dithering about a potential Mansion Tax.
“Secondly, you cannot discount the effect of Obama’s re-election on London as US citizens make up such a substantial proportion of the capital’s tenants. If the US continues to react negatively to its political divisions, then we will see more relocation from the US, and this will benefit the London market.
“But both these factors will be offset by the tough job market in the City at the moment, and in the short term this may be hard to overcome in regards to rental pricing.
“However, the volumes of lettings activity show that we are still progressing towards becoming a nation of renters, particularly with the current strictures surrounding the mortgage market.
“This, finally, is the overriding trend that will come to demonstrate the importance of the private rented sector within the wider UK housing market.”