Latest research indicates that rental values in prime central London locations slipped during July. Additionally, financial service sector demand also dropped off, due to an uneven global economic climate.
The monthly slide of just 0.1% was the first dip since February 2014 and saw annual growth slow down to 2.9%. At its peak in May, growth was 4.2%, while prime gross yields were at 2.95%, according to a study by Knight Frank.
According to the prime central London Index, stock levels have received a boost by the restrained sales market, with an increase in stamp duty for properties worth in excess of £1.1m slowing activity.
Tom Bill, head of London residential research at Knight Frank, suggests that with annual price growth slowing, more property owners have chosen to become landlords and wait until the market to settle, following the introduction of a number of recent tax changes.
Mr Bill said that the short-term imbalance between supply and demand meant that tenants are having to shop around more, meaning that deals are becoming more difficult to close for landlords. As a result, Bill believes that landlords have made it more beneficial and attractive for existing tenants to remain in place, which has led to increased renewal rates.
‘While seasonal demand from students has remained strong, corporate demand has become more muted, despite some pockets of stronger performance,’ Bill noted.
Prime central London rental values slip
In addition, the report shows that demand in the prime central London lettings market has typically been strong, but this year, optimism from bankers fell away during the second quarter of the year.
Mr Bill said, ‘continued regulatory uncertainty means banks are scaling back spending plans and nervousness surrounds a possible UK exit from the European Union, the recent Greek crisis and Chinese stock market volatility. However, there are longer term grounds for economic confidence, and the UK’s recovery was underlined by strong GDP figures in July. Furthermore, in an attempt to increase the appeal of London, Chancellor George Osborne plans to reduce the bank levy.’
‘Meanwhile, Brevan Howard, one of the world’s largest hedge funds, is reportedly moving senior traders back from Geneva to London, underlining the city’s dominance as a global financial centre,’ Bill concluded.