The private rental market in prime central London (PCL) has weakened in recent weeks as tenants take advantage of growing uncertainty around the EU referendum, according to a new report.
The latest analysis from central London property specialist London Central Portfolio (LCP) says that activity in the rental market is starting to cool.
New lets rose by just 0.3% in the first quarter of the year, reflecting growing economic strains created by weakening stock markets, a collapse in oil prices and uncertainty over whether Britain will or will not vote to remain part of the European Union.
Older homes being let to new tenants have been hardest hit by the downturn, as reflected by a 1.2% rental price fall in Q1.
The report says that this is largely because a growing number of rental applicants are attracted to new build homes, along with the fact that there has been a sharp rise in rental stock available. This has increased by 26.7% from 23,039 to 29,198 in the last three months, attributable to a reduction in transactions in the sales market which has led to more homes being available for rent.
“The overall suppression in rents reflects a market dynamic which was conspicuous during the Credit Crunch, as tenants capitalise on economic uncertainty to leverage up their bargaining power. This has been compounded by companies cutting their relocation budgets in the face of global instability and, in some cases, delaying relocations in the run up the EU referendum,” said Naomi Heaton, CEO of LCP.
In light of the existing market conditions, Heaton believes that landlords may need to be more “flexible” to accommodate the higher negotiating power of applicants and to prevent void periods which may erode any increase in rent ultimately achieved.
“For as long as this cycle lasts, landlords also may need to be more open to remedial and upgrade works between tenancies,” she explained.
“A slowdown in the re-let market has been compensated by continued positive renewal increases by tenants in situ. With Landlords often able to achieve contractual rental increases, above that which can be achieved in the open market, average rental growth of 3.3% in the last quarter has been seen in contrast to the softer market elsewhere,” Heaton (pictured) added.
The report also revealed that properties located in and around Marylebone, Fitzrovia and Mayfair have fared best over the last six months. Average rents have risen 10.6% for one bedroom flats and 12.8% for two bedroom properties.
The Chelsea and Earl’s Court area has fared worst, with rental falls of 9.7% for one bedroom units and a 14.4% decline for two bedroom flats. Elsewhere in prime central London’s micro markets, rents have remained almost static.
Heaton continued: “Whilst current economic turmoil has slowed the lettings market, it is certainly not all bad news. Newly refurbished properties, in areas with good transport links and particularly around Cross Rail, continue to attract tenants willing to pay premium prices.
“For tenants with the flexibility to move, now is the optimum time to secure the best deal, before rents, in all probability, harden post-referendum. Landlords may also seek to recoup the increased tax burden they will suffer due to increased entry costs with the additional rate stamp duty and the reduction in mortgage interest relief. Landlords can, therefore, expect an improved picture next year as the market rallies and rents increase to counter the tax and Brexit headwinds.”