Price falls across the prime London rental market have continued to ease as a shortage of stock means supply and demand levels are becoming more aligned. However, the increasingly picky nature of tenants has prevented any significant upward pressure on rents.
Rents fell by 0.3% on average in Q1 of 2018, leaving them 3.1% below where they were a year ago. In spite of these falls
and the noticeable price sensitivity, new tenancies are being agreed and activity remains strong for much of the market.
Prime North West London has seen strong demand for family houses, but lower levels of appropriate and available properties, which has led to some price rises. By contrast, higher-value central London is yet to see rents increase as a result of the more discretionary nature of the market.
Activity remains strong despite price sensitivity
Prime London rental markets
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M A R K E T I N M I N U T E S | A P R I L 2 0 1 8
Rental values to Q1 2018 Prime London rents are down over the year, but falls continue to slow
ISLINGTON
SHOREDITCH
WAPPING
CANARY WHARF
PIMLICO
WESTMINSTER
KNIGHTSBRIDGE
MARYLEBONE
NOTTING HILL
KENSINGTON
MAYFAIR
CHELSEA
HAMMERSMITH
EALING
CHISWICK
EAST SHEEN
RICHMOND
HAM
PUTNEY
FULHAM
BARNES
WANDSWORTH
WIMBLEDON
CLAPHAM
BATTERSEA
ST JOHN’S WOOD
HAMPSTEAD
PRIMROSE HILL
HIGHGATE
NORTH WEST
NORTH & EAST
CENTRAL
WEST
SOUTH WEST
Source Savills Research
Quarterly growth
Annual growth
5-year growth
-0.2%
-2.4%
N/A
West London
Quarterly growth
Annual growth
5-year growth
0.0%
-2.1%
-5.1%
South West London
All London
Quarterly growth
Annual growth
5-year growth
-0.3%
-2.7%
6.1%
North & East London
Quarterly growth
Annual growth
5-year growth
-1.4%
-5.0%
-13.7%
Central London
Quarterly growth
Annual growth
5-year growth
North West London1.1%
-1.5%
-5.2%
Quarterly growth
Annual growth
5-year growth
-0.3%
-3.1%
-7.0%
Quality is keyDemand from tenants for stock of only the best quality is more apparent than ever. Tenants are prepared to pay almost 30% (about £10 per sq ft) more for prime properties which are in immaculate condition compared with those considered moderate or poor.
However, it is not just that tenants are willing to pay a premium. For landlords to secure a tenancy, their properties must be presented to the highest standard.
Tenant flexibilityTenants are continuing to be more flexible on location, prioritising the specification and price of the property over where it is.
Indeed, almost half of all prime tenants are moving from a different borough. Most noticeably, tenants from the central London boroughs of Kensington and Chelsea, and Westminster are increasingly relocating to neighbouring boroughs such as Camden, Hammersmith and Fulham, and Wandsworth, in search of value.
A move from prime Kensington to prime Fulham, Clapham or Putney, for example, would save an average of around £20 per sq ft.
29.3% Premium for
properties in an immaculate condition
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Savills team
Savills plc: Savills plc is a global real estate services provider listed on the London Stock Exchange. We have an international network of more than 700 offices and associates throughout the Americas, the UK, continental Europe, Asia Pacific, Africa and the Middle East, offering a broad range of specialist advisory, management and transactional services to clients all over the world. This report is for general informative purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. While every effort has been made to ensure its accuracy, Savills accepts no liability whatsoever for any direct or consequential loss arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Savills Research.
Jane Cronwright-BrownHead of Lettings 020 7578 [email protected]
Frances ClacyAssociateResidential Research020 7409 [email protected]
Lucian CookDirectorResidential Research 020 7016 [email protected]
Please contact us for further information
Source Savills Research Note These forecasts apply to average rents in the second hand market. New build values may not move at the same rate
Prime rental forecast We expect confidence to return by 2019
2018 2019 2020 2021 2022 5-year compound growth
OutlookAlthough supply and demand seems to be aligning, there is a significant new build pipeline expected to complete over the next few years. Many of these properties will come to the rental market. However, the stamp duty surcharge for additional homes and recent cuts in tax relief for interest payments mean that some mortgaged investors are re-evaluating their portfolios.
As for demand, while uncertainty surrounding Britain’s exit from the EU has changed the nature of the corporate relocation market, some would-be buyers will continue to look for rental properties in the mid-term. As a result, we expect rental falls to continue for the remainder of this year.
By 2019, we anticipate confidence to return to the prime residential markets, once we have a better idea of how our exit from the EU will unfold. This would usually translate into the stabilising of rental values, but as the number of new build completions is expected to be at its highest in 2019, this will limit any significant rental growth. We are forecasting that capital value growth will exceed rental growth over the next five years so landlords are advised to take a longer-term view regarding the value of their assets.
2019 When new build completions are expected to be at their highest
Quality control Tenants are prepared to pay a significant premium for properties in immaculate condition
Average prime £ per sq ft
-3.0% 1.0% 2.0% 4.0% 3.0%7.0%
Prime London
Immaculate Good Moderate Poor
£36£41
£33 £28
Source Savills Research
