Private landlords in the capital are starting to feel the pinch from weaker tenant demand, with some landlords being forced to reduce rents in order to attract new renters.
With significantly more properties to choose from, tenants are firmly in control when it comes to the private rented market across much of London, as reflected by a drop in rents in many parts of the city in recent months, as illustrated by the latest HomeLet data.
The capital’s new build housing market has been particularly badly affected by the slowdown in the rental market, according to London Central Portfolio’s (LCP).
Following LCP’s recent report on the new build housing crisis in London, where sales have fallen as much as 41%, the company now suggests that many new build homes are being left unoccupied because more renters are targeting period homes.
While many areas have seen less demand from new renters, LCP says that places with large numbers of planned new homes, such as between Battersea and Nine Elms, south of the river, where more than 20,000 properties are being delivered, are ‘really beginning to suffer’.
Typically purchased by foreign buyers as rental investments, data analysed by LCP demonstrates a significant annual increase in available rental properties in this area amounting to 28.1%. This has been accompanied by a 6% reduction on asking rents over the last three months.
Alongside an increased supply of properties with reduced asking prices, the number of properties actually let has dropped 14.8% over the same period and there has been a fall in achieved rents of 2.8%, at a time when corporate housing budgets are being tightened.
Naomi Heaton, CEO of LCP, commented: “In much the same way as we see in the sales market, there is increasing fragmentation in the lettings market, according to property type [new build or traditional stock] and by price point.
“Alongside the oversupply of rental stock in new build heartlands, the uncertain economic outlook has resulted in tighter tenant budgets. It is therefore not surprising that recent reports indicate a 14.8% fall in the number of properties rented south of the river over the last three months and a 6% discount on asking rents.”
Unsurprisingly, the research found that the rental market has been far more robust in areas with limited new build potential.
In prime central London, where stock levels have increased by just 5%, rents have not been negatively impacted and have seen an increase of 1.5% over the last three months. The number of properties being let has also seen a 2.5% rise over the corresponding period.
Heaton continued: “In contrast to the dynamics south of the river, the mainstream rental market in prime central London has continued to perform positively as demand for well-presented rental property remains high and stock remains scarce.
“LCP’s portfolio targets one and two bedroom properties in prime central London. During the credit crunch, occupancy rates remained at 96% despite a contraction in the financial sector of one third. With housing budgets being squeezed again, we are once again seeing tenants prioritising location over size and shirking higher priced new developments for quality period stock.
“In contrast to the average 1.2% fall in London rents being reported, newly renovated one-bedroom properties in prime central London, for example, have demonstrated a 6.7% rental increase this year.”