The new year has started rather well with reports that rents in London are falling (here and here) but is the tide really turning or is this calm before the storm?

Here is what the local estate agents forecast for the residential rental market in 2012.

Peter Rollings, Marsh & Parsons [source]

Based on current trends, Marsh & Parsons forecast that rents will rise by another 15% in 2012, with booming demand at the ‘volume’ end of the market (one and two bed flats) balanced against a more sluggish corporate lettings market. It’s obvious – a shortage of quality property for sale in the most popular prime areas will inevitably drive up demand from both interim and long term renters, pushing rents upwards.

However, on the downside, demand in the corporate lettings market for properties renting for more than £1,000 per week has leveled off in recent months, with City firms cutting their relocation budgets. As companies look to keep costs down in the coming year, further growth will come from the lower levels of the market.

Hamptons International [source]

• London is expected to see 5% increase in rental prices and 3% in Prime London.
• Rental demand is expected to remain strong for the mainstream market, with some softening of the market at the top-end due to economic uncertainty.
• High rents in Central London will continue to push demand further out as renters are unable and/or unwilling to stretch budgets. This will support rental growth in areas of Inner London such as Islington, Ealing, Clapham and further out towards Wimbledon, Richmond, Esher and Guildford.

Carter Jonas [source]

• Supply of good quality properties remains restrained, although likely to increase during early 2012.
• The downturn in lettings is forecast to be relatively short-lived and activity levels are expected to recover by the spring of 2012.
• Demand will rise thanks to European tenants attracted by the UK’s comparative stability as well as the flexibility of short lets.
• The London Olympics will also provide a significant boost to demand in 2012, with rents expected to rise by up to 5% from the middle of year.

Chesterton Humberts [source]

• The flat housing market, low availability of quality stock and continued demand from renters will see another year of rental price increases. This situation is likely to be exacerbated in the short-term by the Olympic Games, as demand from visitors for temporary accommodation is expected to put further pressure on the already limited stock levels.

Knight Frank [source]

• Prime London residential rents will rise during 2012 as a whole and will see average annual growth of around 4% to 5% over the medium term.

Cluttons [source]

• We expect the disparity between yields on prime ‘safe haven’ stock and those in secondary locations will continue to widen into 2012. This will be driven by prices weakening on poorer quality property with significant occupier risk.

Peter Rollings prediction is of course music for investors ears but 15%, really?

Knight Frank has released the Prime London Lettings Index for April 2011:

- Prime London rents rose 0.4% in April, representing their 20th consecutive monthly rise. The latest monthly rise contributes to an annual growth rate of 16.3%.

- Rents in central London are at a record high, up 25% since their low point in June 2009 and marginally exceeding the previous peak reached in March 2008 by 0.2%.

- Strong rental growth has outpaced capital value growth over the past year, and has pulled income yields higher, with prime central London gross yields hitting an average of 3.8% in April, up from 3.3% in June last year.

“With rents now marginally above their March 2008 peak level we still see scope for 5% to 10% rises in rents during 2011,” predicts Liam Bailey, Head of Knight Frank Residential Research.

Read the full report HERE.

Letting agents are doing a good job spreading the word about the rent rise.

Lucy Morton of  W A Ellis in Knightsbridge, the letting agent with 27 years of experience, tells Telegraph:

“Landlords who last year locked into long-term tenancies are now trying to revoke them and renegotiate rents, which are rising 15 per cent or more annually in prime parts of London. Tenants are being advised to renew contracts when they end, even if they come with a rent hike, because they would have trouble finding a cheaper property if they decided to walk away.”

“I had a tenant paying £800 a week for an apartment who was disgruntled when it rose to £875. He terminated the tenancy, couldn’t find a cheaper alternative, then asked if his old flat was still available. It had gone for £1,000 a week.”

Here are a few reasons why letting agents don’t have enough stock this Spring:

- First timers can’t pay deposits;
- Overseas investors are expanding portfolios;
- A lot of the owners are trying to sell their property in April, May;
- More landlords are renting privately;
a. More of those who realise they can do it on their own.
b. Landlords who don’t want to pay taxes.
- More (competition from) DSS tenants?

Read also ARLA Review & Index for Residential Investment 2010 Q1

As part of the program to help raise standards and improve choice and mobility for London tenants, the Mayor has launched a new website called The London Rents Map that provides information on the average rents for private accommodation. Unlike existing search portals which show asking prices posted by estate agents and individuals rather than rents achieved, it is based on actual market rents. The data used in the map is supplied by the Valuation Office Agency (VOA) and is based upon market rents from private rented sector lettings. This information is contributed by landlords, agents and tenants across England. The information published on the site is based on a sample of private tenancies created over the most recent 12 months available.

Jump to The London Rents Map.