Rental Values Up in London

The economy is heading for a slowdown if not meltdown. Should we therefore expect rental values to slide in line with worsening expectations for the economy as belts and budgets tighten? Certainly not according to the latest numbers and our own experience in 2010 which show the highest demand in several years and with rental values up by 10% year-on-year. Other agents have reported similar data with figures up to 15% and beyond. So what’s happening and why the contrary outturn to what might be expected?

Part of the answer lies in the differences across regions and type of accommodation on offer. Or type of product if you like. London is unique as an international city but also given the high rate of domestic migration from the rest of the UK. And central London is even more unique – not least given finite amount of space that means new builds are rare and tend often to replace existing stock rather than add substantially to existing stocks of dwellings.

We have noticed a particular rise in the number of foreign students looking for high-end accommodation in central London. Often this translates into demand for flats in modern blocks near the LSE or Kings College or simply in the West End – Covent Garden or Soho or the buzzing South Bank.

The recession has had a major impact on access to credit – not least given the hit banks have taken and the so-called de-leveraging underway to repair their balance sheets (reducing their loans in other words). In turn this has had a major effect on new lending for mortgages with the result many would-be new-buyers cannot obtain a mortgage. Many of those who can afford to buy – in cash or with a high-priced loan and 30-40% deposit – are holding out for the forecasted drop in house prices (pssst..don’t hold your breath…the same demand-supply logic generally applies to sales in London).

Result: many of these folk are staying put in rented accommodation, meaning less new stock. So higher demand and lower stock levels…and…QED, rental values up.

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