Rental values in prime locations across London have seen
some signs of a slowdown in decline, as initial signs of a bottoming out have
International property consultants, Savills, have reported that
rental prices in London have declined by 0.8% in 2018, with cheaper properties
significantly outperforming more expensive ones.
Properties with rental prices of up to £500 per week have
seen a five-year price growth of 6.6%, but properties with rents of up to £3,000
have dropped by 19.5%.
What are the
predictions for rental prices over the next few years?
Savills predicts that rents will rise going forward, over
the next five years they predict an increase of 11.5% on average, with a 12.6%
increase in the prime commuter zone. However, growth is expected to be slow or non-existent
in the short term, as the political and economic uncertainty surrounding Brexit
continues. Rents fell by an average of 9.6% across London’s prime areas since
the referendum in June 2016.
What’s the demand for
properties likely to be?
London’s commuter belt, the prime rental market of London,
has seen a steady demand for smaller properties. This matches the need of
younger tenants commuting to the city for work, and rents for one or two
bedroom properties have seen double digit growth over the past five years.
The outlook for rental prices seems to be largely reliant on
stock levels, and if the sales market improves, it could see many accidental
landlords exiting the private rental sector. Similarly with recent restricted tax
relief on interest payments and other changes recently, such as the stamp duty
levy on buy-to-let properties, there are uncertainties regarding the availability
of rental properties.
Head of Residential Research
at Savills, Lucian Cook, said: “We are seeing footloose, cost-conscious
tenants drawn to prime areas that offer greater value, rather than confining
their search to premium addresses, and there’s a deeper seam of demand for
smaller properties driven by needs-based younger tenants.
“But that doesn’t mean we can anticipate falling rental
supply. Instead, we expect cash investors to become increasingly dominant,
especially in central London, while history suggests international investors
will become more active as uncertainty clears, particularly if they can play
the currency card. Stock levels also look set to rise as the number of new
build homes completing increases.”