Rents fell by 0.4% in Q4, with further falls expected into the spring, reports property consultant Cluttons. The current decrease is following a remarkable period of consistent growth of nearly 9% between Q4 2010 to Q4 2011, reaching a level 10.3% above the market peak in Q1 2008.

The reason behind the tenants’ sensitivity is said to be the lack of promotion and nervousness over job prospects in the City. Landlords are now more flexible as they are keen to keep good quality tenants in place and minimise void periods.

Read the full report here.

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?

According to the latest research by ARLA (Association of Residential Letting Agents), in Q4 2011, only 33% of Prime London letting agents reported more tenants than properties available. Significant drop from the third quarter, when 50% of the agents  noted this trend.

- The ARLA Review and Index for Residential Investment 2011 Q4
- The ARLA Review and index for Residential Investment 2011 Q3

Knight Frank‘s latest latest lettings data for Prime Central London reveals that residential rents fell in October.

Key facts:

- Prime London residential rents fell in October, by -0.1%, the first decline since June 2009.
- Rents still rose by 0.6% in the three months to October.
- Rents have now risen by 27% since the post-crash low in June 2009 and sit near an all time high, some 2% higher than the previous peak level reached in March 2008.
- Total annual returns have averaged 18.2%, before gearing.
- Strong demand from tenants has allowed landlord’s to push rents higher at each break and renewal date. The critical point underpinning this process has been the strength of the central London employment sector. That strength is being tested by redundancies in several areas of the financial sector. Morgan McKinsey, the specialist City recruiter, confirm that available jobs across London’s financial services sector were 22% lower in October compared to the same month in 2010.
- New property instructions are up by 36% in the three months to October compared to the same period last year
- New tenant registrations are higher by 15% over the same period.
- The sharp increase in tenant viewings, rising at twice the rate as new tenant registrations, suggests tenants are more confident about taking their time to view properties and are not feeling rushed into taking the first unit they see.

Read more: Prime London residential rents fall for the first time since June 2009

Rent rises slowed to their lowest rate in 8 months, according to the latest Buy‐to‐Let Index from LSL Property Services, which owns the UK’s largest lettings agent network.

Over the course of the last year, London’s rents have risen faster than any other region. However, the monthly rate of increase slowed in London, with rents increasing to £1,030 a month, just a 0.1% rise compared to September. As a result, London’s annual increase also slowed in October, falling to 5.7% from 5.8% the previous month.

David Newnes, director of LSL Property Services, comments: “Rents are still heading northwards, but tenants may take comfort from the fact they did not climb at such a blistering pace in October. The recent increases are likely to continue to level out in run up to Christmas – traditionally a slower time for the market. Nevertheless,
despite the slower rate of increase, the cost of renting is still rising annually at nearly twice the speed of the average salary and many tenants will need to dedicate a growing portion of their disposable income to the cost of accommodation over the next year.”

Download Buy-to-let Index October 2011 (*pdf)

View to South Bank from St Paul’s Walk, October 2011

Isn’t it too early to ask what’s in store for the year ahead? Estate agent Hamptons International is the first to predict on what is going to happen with London rents next year:

London is expected to see more growth, with a predicted 5% increase in prices and 3% in Prime London.

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.

Lesley Cairns, Head of Lettings at Hamptons International, commented: “We are expecting the rental market boom to continue in Prime and Greater London, driven by a continued imbalance between supply and demand. For the first time ever, the private rented sector will house more people in the UK than the social rented sector, which will put continued pressure on prices.

“Rents are likely to continue to rise, although this rise will be moderated as tenants find ever-more creative ways to make life more affordable. We are already seeing increasing numbers of flat sharers and “outmigrators” looking for a similar quality of stock and location but prepared to move from Zone one to Zones two, three and four to find it. Both of these trends are likely to become more widespread throughout 2012.”

Hamptons International Announces its 2012 Property Market Forecasts

The latest market overview by estate agent W A Ellis sheds some light on how busy the London rental market currently is.

Lucy Morton, senior partner and head of lettings at W A Ellis, comments:

“July and August can traditionally be quiet months in the lettings calendar followed by September heralding a blitz of activity. This year has been a very different story – in both months, activity and completed lettings have been 50% up on this time last year and we go into autumn with this continued frenzy of activity.

“Demand continues to outweigh supply and the press is once again highlighting the fact that we are well into generation rent with the average person having to wait 10 years to save a deposit for a purchase. We not only have those tenants who are forced to rent for financial reasons, but also the frustrated purchaser who is simply unable to find a suitable property to purchase due to the lack of stock. In addition, High Net Worth students arrived in London in their droves this month, together with the late comers into the family market who have left it to the last minute to get settled.

“This has led to heightened demand in the rental market and as such, bidding wars are common place. It is increasingly very much a landlord’s market with landlords dictating the terms. Void periods are well below the 3 week mark on a desirable property presented in first class condition and tenants are paying substantial increases to stay in their current homes.

“The short terms lettings market also continues to see heightened activity due to the impending Olympics. With the major hotels being fully booked, there is a rush to reserve short term lettings from next July at as much as six times the normal lettings values. It remains to be seen how many landlords will be tempted, but they should be aware that they may well be in breach of planning regulations which stipulate no lettings under 90 days. Our concern is that some may fall into the trap of making a short term gain and suffer heavy wear and tear on their property with voids either side and turning away a stable, long term let.”

Source: W.A. Ellis

New tenant demand outpaced supply of rental property in the three months to July, says the latest RICS Residential Lettings Survey. Rents increased across all regions of the UK, but once again they rose at the fastest pace in the capital.

Surveyors report that where tenancies are coming up for renewal, some landlords – particularly those in London and the South East – are now choosing to put their properties on the sales market, leaving fewer rental properties available.

Download RICS Residential Lettings Survey July 2011

London market comments from the local property professionals:

Edward Reeve FRICS, Edward Reeve
Flats are letting very quickly and there are NO voids.

Jeremy Leaf FRICS, Jeremy Leaf & Co., North Finchley
Demand remains strong generally but we’re starting to notice a rent ceiling especially for 2 bedroom flats so prices are firm but steady. First-time buyers seem to be turning to the rental market due to concerns over mortgage lending criteria, job security and lack of wage growth. Instructions are starting to recover after the summer holiday lull though we’re expecting activity to increase in the autumn as usual.

John Collard MRICS, Robert Holmes & Co., Wimbledon Common
Budgets are tighter all round especially corporate budgets. There have never been so many large houses on the market in this busiest quarter and everyone is very short of stock at the 1-2 bed level.

Lynn Hilton, Cluttons, Chelsea
July and August to date has seen an increase in student applicants: as is usual at this time of year. We have seen an increase in private landlords serving notice to their tenants rather than renew or put flats back on the market. They are selling. At the start of the last quarter we did see an increase in apps with large budgets 2,500 – 7,000 per week. This was quite short lived.

Lynn Hilton, Cluttons, Clapham
Landlords nervous of the financing. Are opting to sell.

Mark Wilson MRICS, Globe Apartments, London
With the possibility of central London now being seen as safer than fringe locations as a result of the riots, we see no reason for rents not to keep creeping forward in a flight to safety. We expect a bear market reaction in those fringe areas.

New tenants pay 20-25% higher rental payments than previous occupants, says estate agent Cluttons in their latest Residential Property Forecast:

- New tenants pay 20 to 25 per cent higher rental payments than previous occupants;
- Annual rental growth is at record high of 20.4% in Q2 2011 with London rental value growth forecast at 11.1% easing to 2% in 2012;
- Some parts of London are reporting a growing number of renters from North Africa, fleeing the unrest as a result of the Arab Spring;
- Average rental uplifts at renewal range from an extra £10 per week to an additional 10% per annum;
- Landlords are keen to maximise their returns as they are conscious of the fact many tenants, bound by financial constraints, have no option but to continue to live in rented accommodation either having been priced out of the sales market or unable to locate a suitable property due to supply drought.

Download the full report here (*pdf).

London rents hit a new high of £1,009 per month in July according to the latest Buy‐to‐Let Index from the lettings agent network LSL Property Services. The annual rent increase was 7.1%, which is by far the greatest increase in England and Wales.

Download the full report HERE.

In central London you are lucky if you can get a small studio for that price… Here is what you can rent for £1000 pcm in London:
2-bedroom flat in Upper Walthamstow E17 FindaFlat.co.uk
Studio Apartment in W2 FindaFlat.co.uk
1-bedroom in Mile End E3 FindaFlat.co.uk

Estate agent Fitz-Gibbons has just published the new Richmond Magazine where Jane Wheeler, Manager of Fitz-Gibbon Richmond, surveys the lettings scene:

The local lettings market is vibrant right now, with demand outstripping supply across the board. As uncertainty continues in the sales market, lettings is being fuelled by the discerning corporate market – international tenants seeking superior homes near London, as well as local people who are renting for longer periods.

At Fitz-Gibbon Richmond, we’re seeing not only strong offers, but also multiple offers placed on the same property time and again. Fortunately, most tenants are being flexible in terms of their demands – and, in a landlord’s market, that’s vitally important for those wishing to secure a property. In addition, tenants should ensure that they come to viewings fully prepared and able to act quickly.

One-bedroom properties are currently achieving between £1,300 and £1,500 per calendar month, whilst two-bedroom homes, with parking and gardens, can generate up to £2,300pcm.

For three-bedroom houses, expect valuations between £1,900 and £3,500pcm. As for homes with four or more bedrooms, they can achieve between £4,000 and £10,000, depending on their location and specification. There are always exceptions to these rules, however, and the property market determines rental values for outstanding properties.

Another key point is that, in the current climate, many homes that we would expect to remarket are not becoming available, as our tenants are choosing to renew their tenancy agreements.

Renewal rates currently mirror the retail price index or above. And this renewals trend is a reflection of two things: Firstly, the volumes of locals waiting to re-enter the sales market; and secondly, the stronger corporate market, with tenants residing in the area for longer periods.

Richmond’s transport links to London, Heathrow and the M4 make it ideally suited to the corporate market and, as a lettings specialist, Fitz-Gibbon naturally attracts both large corporations and leading relocation agents.

Read also Fitz-Gibbons Property and Lettings e-zine.

Queens Gardens in Bayswater W2

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.

“I really can’t understand where all the stock’s gone!” Peter Rollings, Chief Executive of London Estate Agents Marsh & Parsons, says it like it is.

Macclesfield House, London EC1. April 2011.

Letting agent Benham & Reeves reports of a severe shortage of properties for prospective tenants in London.

“Summer has come early to London in every sense – the sun is out and the rental market is ultra-hot thanks to a unique combination of four factors” explains Anita Mehra, Managing Director of Benham and Reeves Residential Lettings.

“Firstly, property remains very attractive to overseas investors because of the exchange rate, which makes many homes effectively 20 per cent cheaper now than in 2006″ says Anita, who has just returned from several property exhibitions in Hong Kong, Singapore and Kuala Lumpur.

“Secondly, the City – on which much of the Capital’s prime rental market depends – is in good health. Experian, a business consultancy, predicts London’s financial and business services sector will grow 2.8% per annum over the next five years” she says. The result is that many overseas financial services experts are coming to the UK for short periods and become the professional tenants who so many landlords want to attract.

Thirdly, there are growing numbers of international students in London – there are now 285,000, some 25% more than just two years ago, and academic experts say there will be a predicted 47,000 student-bed shortfall by 2016 as the number of incomers grows well beyond the construction of purpose-built accommodation.

Finally, falling levels of new house-building and continued mortgage restrictions, especially for first time and young professional buyers, mean the demand for London homes – to buy and to rent – look likely to outstrip supply for many years to come.

Annual lettings activity in West London, from Spring issue of London Portrait by estate agent Marsh & Parsons.