Average rents rose on an annual basis to the end of September by 4.7% - the highest level since August 2001 – and stood in marked contrast to the corresponding figure of -6.2% in September 2003.
Monthly performance was also better in September, with average rents in the prime locations showing an uplift of nearly 1%. This reflects the pick up in lettings activity with the conclusion of the traditionally quieter August holiday period.
Knight Frank offices report applicant levels were appreciably higher in September. This is due to the combination of a number of factors: the end of the holiday period, a rise in corporate lettings as a result of company relocations and an increase in the number of “in-betweeners” – households who can afford to buy but who are reluctant to commit themselves at a time when there is uncertainty about the shorter term direction of the sales market.
In terms of the nationality mix of new tenants, quarter three saw a drop in the proportion of North Americans compared to the previous quarter – down from 23% to 15%. In contrast, the share accounted for by Europeans rose from 21% to 33% during the quarter. This is largely attributable to an increase in the number of corporate contracts for European tenants.
On the supply side, the market remains characterised by an acute shortage of properties to let in the prime locations, a factor which has also contributed to firmer rental levels. Knight Frank’s Docklands office reports available properties to let were down on the previous quarter by approximately 65% while the Wapping office experienced a circa 35% reduction – meanwhile both offices are experiencing strong tenant demand. The shortage is also being seen in more traditional markets: the Notting Hill office is experiencing an ongoing lack of family houses and undersupply of 3 bedroom properties, while in Chelsea Knight Frank is unable to meet tenant demand for 1- and 2-bedroom apartments.
Tim Hyatt, Head of Residential Lettings at Knight Frank, comments: “The mood in the prime London lettings market is moving from one of cautious optimism to being genuinely upbeat. This change in sentiment could trigger renewed interest in the “buy-to-let” market in its truest form as investors begin to see tenant demand improving and yields trending upwards.”
Liam Bailey, Head of Residential Research at Knight Frank, comments: “The prime London lettings market continues to demonstrate a steady recovery which in recent months has been aided by the uncertainty surrounding the shorter term direction of the sales market. We expect to see even further strengthening over the coming quarter which will hopefully encourage more landlords to bring properties to the market to alleviate the current stock shortages.”
