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Do High Rents Mean London is Losing Its Edge?

Higher borrowing costs have created a mood of hesitancy in property markets. Rising mortgage rates mean UK residential sales are increasingly driven by buyers who need to move.

Another consequence is that international companies have been re-assessing how many staff they relocate to London. 

The number of corporate relocation searches in the first four months of this year was 20% lower than last year. It was also 40% down compared to 2022 but higher than the previous two pandemic-hit years, Knight Frank data shows.


“Economic headwinds and higher debt costs have been weighing somewhat on demand,” said John Humphris, head of relocation and corporate services at Knight Frank. “It means more companies, particularly in some sectors, are moving staff based on a business need rather than as a nice-to-have. If a law firm needs to move a prominent lawyer from the US to the UK to attract clients, they will still do that, but the general mood is more considered.”

Rising rents in recent years have also made relocations more expensive. Average rents in prime central London have risen 58% over the last three years, largely due to shrinking supply. The equivalent rise in prime outer London was 47%, although annual rental value growth in both areas narrowed to less than 5% in April.

A tougher regulatory landscape and rising mortgage costs mean a number of landlords have left the sector in recent years, some taking advantage of a 17-month stamp duty holiday that began in July 2020 as a result of the pandemic.

Corporate relocations to London and the surrounding area are typically from the energy, finance, professional services, legal and tech sectors. Those moving need a skilled worker visa, which the UK government issued a total of 69,421 in the year to June 2023. 

However, there have been recent waves of layoffs in the tech sector as companies free up cash to invest in Artificial Intelligence, respond to higher inflation and interest rates, and readjust plans after over-hiring during the pandemic.

Technology, media, and telecoms accounted for 45% of all relocation searches in the 12 months to March 2023. In the most recent 12-month period, that fell to 27%. Meanwhile, the percentage of searches from the finance sector rose to 26% from 19% over the same period, while the energy sector accounted for 11%, up from 6% last year.

The tech layoffs are starting to ease in 2024, helped by a growing belief that rates will fall this year. Indeed, there was some encouraging news on US inflation just last week, which resumed its downward trend by rising 3.4% in the year to April.

The UK five-year swap rate fell below 4.2% on the news, which compared to a figure of more than 4.4% at the start of the month. It was good news for anyone buying or re-mortgaging.

Business sentiment also seems to be improving. In fact, the number of corporate searches in April was 8% higher than the same month in 2023.

The Lloyds Business Barometer has steadily risen since the mini-Budget of late 2022, hitting a two-year high of 44% in January, as the chart shows. The figure is a net balance of positive versus negative survey responses.

Similarly, the Deloitte CFO survey shows a net balance of chief financial officers are more optimistic about the financial prospects for their business versus three months ago.

The other bit of good news for companies planning to relocate staff to London is that they will also have more rental properties to choose from. The number of new lettings listings in London the first four months of this year was 17% higher than 2023, Rightmove data shows.

* Tom Bill is head of residential research at Knight Frank *

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    I have always mused why some individuals choose to live in London, if you’re on mega bucks 💰💰 then I get it, but the average “ Joe” ? The extra London weighting allowance doesn’t make up for the overall costs. I have earned an average wage, or just above it, all my life. I am due to retire soon, I have a few BTL’s, now mortgage free, sold some already, and I own outright my own very nice home. I doubt those today living in the Capital could achieve what I have on an average salary 🤔 they will live in tiny rentals all their existence 👎🏻😰. Am I missing something 🤷‍♂️


    Very good points Simon, but I think a number of people want to live near to their families.


    I want six winning lottery numbers and permanent cures for my various health issues, but we can't always get what we want, can we?

    My late mother was the only one of four daughters who lived permanently in her home town near her parents.


    I think it comes down to priorities AL.

    For some people being near to family is the number one priority and tops all economic and other considerations.

    Other people will move happily, even to another country, to further their careers etc,. and others will look at where they can afford to buy.

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    In terms of the piece by Tom Bill, I think the main relevance to us is that it is very difficult to find a corporate let. Those are great for landlords, particularly with a Labour government likely to be in control very soon.


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