In the first half of 2013, London rental values fell in the City and Docklands as supply of rental flats went up. The expansion of London’s rental stock is set to be a long-term trend implying that fall in rental values are inevitable.
Bulk of this additional rental stock entering the market is new homes pipeline from the buy to let investments genre. Further additions to stock in the second half of 2013 also came from pre-purchased stock of 2011 and 2012 collectively.
In terms of institutional investment, the Private rented sector feels yields are not lucrative as compared to suburban locations of London.
For flats to rent in London, The fall in rental value in the first half of 2013 was very steep. The rental value of a typical two bedroom flat dropped by 11 percent from £631 to £561 per week. The premium that a renter would pay for a second bedroom also declined and narrowed with the differential between one and two beds in the City to 32 percent compared to 44 percent in 2011.
The premium was down in Dockland yet it declined from 29 percent in 2011 to 21 percent today.
In the London retail market 2013 renters were ready to compromise on the size of their apartment for a convenient central location. Since two bedroom properties are less affordable than one bedroom they pitch for the latter. So renters prefer a one bedroom property rather than a less central area.
Long term increases in rental values are modest than many newspaper headlines suggested. In the last 15 years the average rent for a two bedroom flat in London rose by 32 percent and the same for a one bedroom flat was 23 percent. This compares with capital value jumps closer to 200 percent over the same period.
Windfall for Tenants
Tenants agree for lease renewals when the rental market is going strong. When rents fall, tenants have many options—moving to a new accommodation to reduce monthly outgoings or change into a better apartment.
In Midtown City and Docklands, the expanding stock of well-designed apartments in convenient locations is containing rental growth and adding to the choice for renters. It will continue.
In West or North London the situation is different. There the stock is stable although the recently granted Permitted Development Rights created some new opportunities for office to residential conversion in the less central parts of north and west London.