Average rents in prime central London recorded a fall of 3.1% over the course of 2017, but the rate of decline has slowed, suggesting the imbalance between supply and demand in the current market has eased a little, the latest rental report shows.
Despite falling rents, the market has remained active. This activity has been from needs-based tenants at the lower end of the market, fuelling demand for smaller properties, as well as from super-prime tenants at the top end and affluent students, according to the report from Savills.
It also reveals that rents in the prime markets outside London have also dropped by 1.5% over the 12 months.
Despite the dip in rents, London was recently named the most expensive city in Europe for renting accommodation for a third consecutive year, according to new research.
The average price of an unfurnished, three-bedroom apartment in prime areas of London is £5,398 a month, while the European average is £1,705, figures from consultancy ECA International show.
But according to Savills, prime country rental markets have remained stronger than London over the longer term, with five year growth of 3.7% compared with falls of 5.7% in prime London and across the market, with activity levels varying by location.
Given existing market stock levels, especially the high volume of new build properties, Savills expect rental falls to continue in the short term, with a fall, over 2018, of 3% in London and 1% in the commuter belt.
Markets outside the capital have far less new build stock in the pipeline and have experienced smaller falls, with a view that they will recover slightly more strongly over the next five years.
Savills is urging landlords in prime areas of London to bear the current climate and supply in mind, remaining ‘flexible on price’ and ‘focused on the condition of their properties’ to remain competitive with the new build stock.
The rising popularity of short-term lets means tenant’s expectations have changed, and to appeal to a younger demographic, Savills is urging landlords to consider what they include in a rental package and remain flexible on terms.
Savills forecast that capital values are likely to increase at a stronger pace than rental values over the next five years, with a forecast of 20.3% growth in prime central London, 10.2% in outer prime London, and 14.2% in the commuter zone by 2022.
‘Landlords will need to take a mid-term view to see the forthcoming years as an opportunity for asset wealth generation’, the report concluded.