The long-awaited supply increase in the prime London lettings market is underway, says high-end agency Knight Frank.
The agency says the underlying cause is uncertainty facing the sales market as rising mortgage rates put downwards pressure on prices and sales volumes.
The number of lettings instructions in July in London was 18 per cent higher than the same month last year and the highest for any single month since October 2020, Knight Frank data shows.
“We are starting to see a noticeable shift in stock from the sales markets to the lettings market as owners are not able to sell for the asking price. A strong sales market in Notting Hill and Kensington meant they were the last two areas holding out, but we are now seeing it happening there too” says David Mumby, head of prime central London lettings at Knight Frank.
“Some of the stock that has gone across from lettings has sold, but we are unquestionably seeing more stock come back to lettings,” adds Jon Reynolds, head of north and east London lettings at Knight Frank.
Rental value growth has continued to calm as supply improves but it’s still strong by historical standards, the agency states.
Average rents grew by 13.7 per cent in the year to July in prime central London, which is down from almost 30 per cent at the height of the stock shortage in April last year. However, to put that in perspective, average rents grew by 15.6 per cent in the decade before the pandemic.
In prime outer London, rents grew 12 per cent in the year to July, which exceeded the growth of 11 per cent seen over the decade before the pandemic.
The agency continues that although there will be more downwards pressure on rents as supply rises, there is unlikely to be a notable impact in the short-term as demand remains strong, particularly during the busy summer period.
Indeed, rents grew by 1.0 per cent in prime central London in tJuly, which was the highest figure since January. Monthly growth of 0.9 per cent in prime outer London was also the strongest result over the same time period.
“Stock is rising but things won’t get meaningfully easier for tenants quite yet” Knight Frank concludes.