“City” job losses lower London property rents, Knight Frank

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Knight Frank’s Prime Central London Rental Index, January 2012 results reveal a drop in residential rates for prime London property, the main driver being recent City job losses and affordability of tenants.

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With the banking sector expected to deliver much lower bonuses in the first quarter of 2012 compared to last year, tenants who are building deposits for eventual entry to the housing market are looking to reduce their rental costs in the interim

Knight Frank’s Prime Central London Rental Index, January 2012 results.

  •     Residential rents in prime central London property fell back by 0.2% in January, meaning rents are now 0.6% below their September 2011 peak
  •     Despite the recent monthly falls residential rents are still around 7% higher than a year ago
  •     The key drivers for the recent weaker residential rental performance in central London are: City of London job losses and, ultimately, affordability for tenants

Liam Bailey, head of Residential Research at Knight Frank comments: “Rental falls in winter are not uncommon, the employment market is quieter and less people are typically looking to move to new positions.

“However there are signs that the weakness in the City of London jobs market, where new employment vacancies are down 51% year-on-year at the current time (according to Morgan McKinley), is beginning to feed through to the rental sector.

“With the banking sector expected to deliver much lower bonuses in the first quarter of 2012 compared to last year, tenants who are building deposits for eventual entry to the housing market are looking to reduce their rental costs in the interim.

“Additionally rental budgets for corporate tenants, employees who have been relocated to London by their firms, have been cut back by anything up to 15% over the past 12 months.

“The other main driver helping to push rents lower is affordability. Tenants saw rents rise 27% in the two years to September 2011 – hitting all-time highs at that point. At best, disposable income even in central London, only rose by around 8% over the same period – landlords are having to accept that continually rising rents are not a fixture of the market.

“In terms of sub-market performance, across central London property there is a particular shortage of prospective tenants looking in the mid-market, a definition which varies depending on the area, but is typically around £800 or £1,000 to £2,000 a week.

“Activity has been strongest at the lower end of the market and to a lesser extent, the top-end. The sub-£1,000 a week bracket has seen more demand recently as people have been tightening their budgets, with both individual tenants and companies housing corporate tenants.

“The £4,000+ per week bracket has also been active, especially in Belgravia and Knightsbridge with the arrival of a number of Russian tenants at this level of the market.

“Our view looking ahead is that rents will begin to rise slightly from the spring onwards. We are not expecting significant rises from here.”

For further information, please contact London estate agents, Knight Frank:

Liam Bailey, head of Residential Research, Knight Frank, +44 (0)7919 303 148, liam.bailey[at]knightfrank.com

Daisy Ziegler, London PR manager, Knight Frank, +44 (0)20 7861 1031, daisy.ziegler(at)knightfrank(dot)com

Notes to Editors
Knight Frank LLP is the leading independent global property consultancy. Headquartered in London, Knight Frank and its New York-based global partner, Newmark Knight Frank, operate from 242 offices, in 43 countries, across six continents. More than 7,067 professionals handle in excess of US$817 billion (£498 billion) worth of commercial, agricultural and residential real estate annually, advising clients ranging from individual owners and buyers to major developers, investors and corporate tenants. For further information about the Company, please visit http://www.knightfrank.com.

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Gareth McConnell
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