Excess property supply in prime central London has led to a further drop in rents, according to the latest study by JLL.
Excess Supply in Prime Central London Leads to Further Drop in Rents
Activity in the prime central London lettings market was subdued over the second quarter (Q2) of the year, as demand dropped following a rise in the number of properties to let.
Consequently, tenants have had ample choice over the properties they want to live in, which has caused a fall in rents in some price ranges – particularly when properties are not presented to the highest standard. JLL has found that immaculate properties presented in top class condition are not dropping in value.
The Residential Research Director at JLL, Neil Chegwidden, comments: “The main feature of the current market is an oversupply of stock. With weakened tenant demand, the increased supply of properties on the market is not being eroded. Available supply has also been boosted by owners electing to rent out their properties as opposed to selling them, given the diminished demand in the sales market.
“Sources of new demand have been limited in 2016, and this has left existing tenants in a strong bargaining position. Although most are choosing to remain in their current accommodation due to the upheaval and cost of a move, some are moving elsewhere to take advantage of these conditions.”
The surplus of property supply has led to pressure on rents across prime central London, the firm reports. The lower end of the market had previously been relatively immune, but over Q2, rent prices have dropped.
On average, rents in prime central London fell by 1.9% during Q2. In the year to Q2, rents decreased by 4.3%, although declines of 8-10% were recorded across higher rent levels.
However, rental market activity across prime central London has remained stable, with the number of transactions in the 12 months to Q1 down by just 1% on the previous year.
In Q2, activity also picked up slightly, with the volume of transactions up by 12% on Q2 2015. This comprised a 1% decrease in flat lettings and an 8% rise in house rentals.
The Director of Residential Agency at JLL, Lucy Morton, is much more optimistic about Q3: “Whilst the first six months of 2016 were challenging for the prime central London lettings market, Q3 is more active. Along with an increase in transactions, we expect the current oversupply of available properties to diminish as demand increases. We are seeing and letting to an influx of high net worth students and families eager to get settled before the start of the next school year. There is a marked increase in enquiries from relocation agents acting for the City corporations relocating expats into London.”
Do you have a rental property in prime central London? How have you been affected by excess supply issues?