Rate of dizzying rent rises in London finally slows

The apparently unstoppable rent rises in central London have finally steadied.

According to Knight Frank, they fell by a marginal 0.1% in October. Whilst the fall is negligible, it is notable in that the decline is the first since June 2009, the post-crash low.

Despite October’s tiptoe downwards, rents in central London still rose, by 0.6%, in the three months to October, and rents remain 27% higher than two years ago and 2% higher than the previous record of March 2008.

Liam Bailey, Knight Frank’s head of residential research, said: “London’s investment market has delivered strong returns for investors over the past two years.

“For those brave enough to enter the market in the months immediately after the Lehman collapse two and a half years ago, total annual returns have averaged 18.2%, before gearing.”

He went on: “Strong demand from tenants has allowed landlords to push rents higher at each break and renewal date. The critical point underpinning this process has been the strength of the central London employment sector.

“But that strength is being tested by redundancies in several areas of the financial sector. Morgan McKinsey, the specialist City recruiter, confirm that available jobs across London’s financial services sector were 22% lower in October compared to the same month in 2010.”
 
He said that growth in supply is now outpacing growth in tenancy demand. “New property instructions are up by 36% in the three months to October compared to last year – but new tenant registrations are higher by only 15%.
 
“The sharp increase in tenant viewings, rising at twice the rate as new tenant registrations, suggests tenants are more confident about taking their time to view properties and are not feeling rushed into taking the first unit they see.

“While our comment last month that ‘the current steep rise in rents will come to an end during the final quarter of 2011’, was prescient, we do not believe that we are about the experience a sharp reversal in rents.

“We stand by our forecast that 2012 will see positive rental growth, although this will be likely to be capped at 4%-5%, which we believe is a realistic and sustainable forecast for the medium to long term for the prime London rental sector.”