Prime London rental market Q3 2023
The bounce back in rental demand after the pandemic amid constrained supply created a turbo-charged market in 2022.
There is still very strong rental demand compared to pre-pandemic norms, but it has now plateau-ed in many areas, or has started to recede slightly.
Rents in some central prime areas fell during 2020 and 2021 as students returned home and some renters choose to move out of city centres, creating a rise in supply. More supply was added as short-term rental landlords also moved their properties into the long-term rental market in the absence of visitors. Some landlords, faced with increased tax and regulation also took this opportunity to sell their properties.
As the pandemic ended, these trends reversed. Overseas and domestic tourism returned with a bang, prompting those short-term landlords to take their properties back out of the long-term market. At the same time, students, graduates and workers returned to city centres as supply was tight, putting upwards pressure on rents.
Demand for rental properties is still high in relation to most historical norms, yet the number of homes listed for rent was down more than 6% year-on-year in May, according to data from Lonres, highlighting the demand/supply imbalance. As the sales market outlook becomes cloudier, some potential sellers may be tempted to rent out properties if they can not achieve their asking price, which could act as a loosener on supply in some markets.
The rental market remains seasonal, especially in city centres, and prime central London is no exception. Demand rises in late summer, with the peak months in August and September as students return to university, new school terms start, and graduates embark on their first jobs. This will put some further upward pressure on rents, but as shown in the chart below, the growth in rents has peaked, so overall rental growth is set to be lower this year than last year. Cluttons forecasts show prime London rental growth at 5% by the end of the year.
The sharp rise in rents over the last few years alongside a slower rise in prices means prime London yields have also moved out over the last 24 months, from 2.7% in summer 2021 to 3.2% in June this year.
Outlook
| Year | UK house price change | Prime London sales price change | Prime London rental value change |
|---|---|---|---|
| Dec 22 | 3% | 1% | 12% |
| Dec 23 | -8.0% | -4.0% | 5.0% |
| Dec 24 | -2.0% | 0.5% | 3.5% |
| Dec 25 | 4.5% | 3.0% | 3.0% |
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