Rental declines hide demand growth in central London

The pattern of modest rental declines and rising letting volumes continued in August. Liam Bailey, Head of Knight Frank Residential Research examines the apparent disconnect.

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Properties in the City are bucking the trend however, with a 0.6% rise in the three months to August and a 1.8% rise over the past year.

London, UK (PRWEB UK) 3 September 2012

Knight Frank's Prime Central London Rental Index, results for August 2012:

  • Prime central London rents fell 0.4% in August, taking the annual change to -1.7%
  • Rents have been falling since October 2011, bar June 2012 when they remained flat
  • Rents have fallen more for houses (-2.9%) than for apartments (-1.7%) in the year to August
  • Rents have fallen more in the £1,500+ per week bracket (-2.8%) than in the £500 to £1,500 per week bracket (-1.6%) in the year to August

The pattern of modest rental declines and rising letting volumes continued in August. Liam Bailey, Head of Knight Frank Residential Research examines the apparent disconnect.

Prime central London rents continued on their downward trajectory in August with a fall of 0.4%, taking the annual change to a fairly modest -1.7%.

Rents have been falling since October 2011, bar June 2012 when they remained flat. The market for houses has seen bigger falls than that for apartments, at -2.9% and -1.7% respectively.

Rents have also fallen more in the £1,500+ per week bracket (-2.8%) than in the £500 to £1,500 per week bracket (-1.6%) in the year to August.

Properties in the City are bucking the trend however, with a 0.6% rise in the three months to August and a 1.8% rise over the past year, along with Notting Hill, which saw a 0.5% rise in the past three months and a 4.1% rise over the year.

The main factor weighing on rents has been the state of the London economy. Since the end of 2011 the economy has weakened as the Eurozone crisis put downward pressure on growth, confidence and recruitment.

This weakness can be seen in data from recruitment specialist Morgan McKinley, which confirms that in terms of new employment vacancies in central London, 2012 is far underperforming the picture seen in both 2010 and 2011.

But while rents may be performing below trend, activity has risen, with new lettings volumes in the last three months 18% higher than the same period in 2011. This increase in activity reflects a broader shift in favour of the rental sector across the UK, due to the lack of mortgage market funding for new entrants in the owner-occupier market.

Our view is that the current weakness in headline rents is not evidence of a wider downturn in demand from tenants. Rather it is that affordability constraints are limiting the scope for rental growth, and that the weaker performance of London’s economy is effectively resetting rental levels downwards.

Our forecast for 1% growth in 2012 may be slightly too optimistic, but we are confident in our expectation for stronger positive growth in the medium term.

For further information, please contact:
Liam Bailey, head of Residential Research, Knight Frank, +44 (0)7919 303 148, liam(dot)bailey(at)knightfrank(dot)com

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

Ends

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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