_Rental value declines bottom out in prime central London

Average rents in prime central London declined 2.5% year-on-year in October, the smallest decline recorded since May 2016.

Although average rents for existing homes in prime central London have been falling for 21 months, the declines have moderated in 2017 as the rate of new supply slows down. 

The number of properties coming onto the market between January and September was just 1% higher compared to the same period in 2016, There was an  equivalent jump of 30% between 2015 and 2016.

Supply levels have started to moderate for two reasons. First, while a degree of uncertainty persists in the sales market, volumes are stabilising as asking prices are reset to reflect higher transaction costs, which means fewer would-be vendors are choosing to rent out their property instead of selling. Second, the figures also reflect a spike in new stock that followed the introduction of the additional rates of stamp duty in April 2016.

Meanwhile, demand is rising, which is also having a positive effect on rental values. The number of new prospective tenants registering between January and September increased 17% and viewing levels were 22% higher than last year. Accordingly, the number of tenancies agreed in the first nine months of the year was 17.4% higher than 2016.

The market for properties rented out for less than £1,000/week performed more strongly than homes in the £1,000 to £5,000 price bracket.

The number of tenancies agreed below £1,000/week rose 23% over in the first nine months of the year. In contrast, there was an 0.8% decline in transaction levels in the higher price bracket, where demand has traditionally come from senior executives and therefore is more susceptible to political and economic uncertainty.

Meanwhile, further up the price scale, demand continues to strengthen in the £5,000-plus/week super-prime lettings market. There were 103 deals in the first nine months of 2017, which compared to 85 in the same period last year, LonRes data shows.

The overall imbalance between new levels of supply and demand suggests the market  will continue tipping in the favour of landlords after a period when tenants have benefitted from higher supply levels and falling rental values.