London rents slip further as jobs market weakens

Rents are continuing to stutter downwards in prime central London, says Knight Frank.

They fell 0.2% in February, bringing rents back to where they were last June.

The current round of rental price falls relates to weaker conditions in the central London employment market, said Liam Bailey, Knight Frank’s head of residential research.

He said job losses in the City in the third quarter of last year had led to a slackening of demand.

He said: “The rapid rebound in rental levels between mid-2009 and late-2011, when rents rose by 26.9%, was driven by a revival of the central London economy, following the ravages of the credit crunch and global recession.

“By October last year, rents had recovered all losses sustained in 2008 and early 2009, and hit an all-time high at 1.8% above their previous peak in March 2008.

“Further growth from here was dependent on continued demand-side expansion. But with job losses in the City beginning in Q3 last year, demand began to fall back a little in October.

“While employment prospects in central London are still weak, there are some encouraging indicators for landlords. The volume of new tenant registrations rose 23% in the three months to February compared to the same period a year earlier.”

Tim Hyatt, head of Knight Frank residential lettings, and ARLA president, said: “Corporate employment is key to the rental market but it is too early in the year to predict the true picture of what rents will do over the course of the next 6-12 months.

“We are already seeing demand beginning to pick up, and most of our offices are reporting the healthiest instruction book yet. I am sure these properties will let quickly and rents will continue to rise, subject to no further cut-backs within the City.”

Knight Frank's view was echoed by Lucy Morton, senior partner and head of lettings at WA Ellis.

She said: “There is now no doubt that prime central London rents peaked in September 2011.  

“They levelled off until the beginning of this year, and have since fallen back by approximately 2%, but are still higher than at the beginning of 2011.  

“Our market is underpinned by the City and the corporate expat community, which are experiencing job losses and rental allowance cuts. An international oil company has recently cut their budgets by as much as 50%.  

“The worst affected area is in the middle management sector.”

She added: “Tenants are aware of the change in market conditions and some are looking for cheaper properties with more space. There will no doubt be movement from tenants relocating within London.  

“UK tenant demand continues to rise, and interestingly, there are now more Europeans arriving to rent in London than there are Americans.

“The increase in supply and the worry over voids may force some landlords to sell, but then they have the dilemma of what to do with their money and how to keep it safe, as well as from the burden of any capital gains tax.  

“We have noticed some stock moving to the sales market over the last couple of months and the trend of clients placing properties on both the sales and lettings markets continues.”