Prime central London rental volumes improved at end of 2016

The final quarter of 2016 saw strong growth in lettings volumes in the prime central London market, with activity particularly strong at the highest and lowest price sectors, the latest research from Knight Frank shows.

The decline in annual rental value growth slowed marginally, down 5% in January and there was a 5% year on year increase in the number of super-prime deals in 2016, according to the prime central London rental index.

There was a 12% year on year increase in the supply of new lettings properties in the final quarter of 2016 but that was lower than the increase of 30% recorded over the first nine months of the year.

A breakdown of the figures show that the biggest fall in rents in the year to January 2017 was in Knightsbridge with a fall of 9.9%, followed by Notting Hill down 9.5%, Riverside down 9.3% and South Kensington down 9%.

There was a 7.1% fall in Bayswater, a 5.3% fall in Chelsea and in Marylebone, a 5.1% fall in Belgravia, a 3.8% fall in Mayfair, a 3% fall in St John’s Wood and 2.9% fall in Kensington.

Other locations in the prime central market are bearing up better. There was a 2.3% annual fall in Islington, while City and Fringe, King’s Cross and Tower Bridge recorded only marginal year on year declines of 0.7%, 0.6% and 0.2% respectively.

Tom Bill, head of London residential research at Knight Frank, pointed out that the annual rental value decline of 5% in January was marginally stronger than that seen in the previous two months.

“Rental values have been declining since May 2015 in part due to higher levels of rental stock. The fact landlords face a less favourable tax environment from April, has contributed to the slowdown in supply to some degree,” he said.

But he also pointed out that demand continues to strengthen, particularly at the higher and lower end of the prime central London market. Above £5,000 per week, in the so-called super prime section of the lettings market, demand remains strong among tenants who are uncertain over the short term trajectory of pricing in the sales market.

Indeed, the number of super prime deals rose 5% in 2016 compared to 2015, LonRes data shows. Activity is also relatively stronger below £1,500 per week.

The number of tenancies agreed across prime central London was 20% higher in the final quarter of 2016 compared to 2015, which Bill said puts upwards pressure on rental values.

“For rental properties between £1,500 and £5,000 per week, activity is improving but remains comparatively slower. The primary cause is that budgets for senior executives at financial institutions have been reduced due to the wider mood of economic uncertainty,” Bill explained.

“While the UK’s decision to leave the European Union has raised some questions over the status of London as a leading global financial centre, this trend for greater efficiency pre-dates Brexit and relates to the increased regulatory pressures on banks as well as a low interest rate environment that curbs profitability,” he added.

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