This is the highest since March 2001 when it reached 2.8%. On a monthly basis, rental growth was 0.7% in July, matching June’s figure. This strengthening in the market has been largely driven by the recovery of London’s corporate sector, with the CBI and PricewaterhouseCoopers reporting that financial services firms were hiring staff at the fastest rate for 15 years in the second quarter of 2004.
UK tenants grow whilst Americans stay away
The UK tenants’ share of market has increased by 3 percentage points between June and July to its highest level since the Knight Frank Lettings Index began in 1995. Tenants from Europe, the Far East and the Middle East remained static during July, while the proportion of those from the rest of the world decreased slightly to 8%. The proportion of American tenants living in London has decreased by 2 percentage points and now accounts for just over a fifth of the market.
Tim Hyatt, Head of Lettings at Knight Frank, comments:
“The positive trend we saw in the London lettings market during the second quarter of the year has maintained its impetus into July. The recovery in the City employment market has resulted in growing tenant demand in central London.
“A narrowing of the gap between asking and achieved rents reflects the strength of the market. Last year we were seeing achieved rents at a discount of up to 25% compared to asking rents. By July this year, this discount had narrowed to 5%. There are also a lot of renewals taking place as tenants wait to see how the sales market behaves over the coming months. These renewals are largely at the same rents or with slight increases.
“Our data has shown house price growth in the three months to July of 2.2%, whilst flats saw growth of 1.4% over the same period - a further indication of the current shortage in supply of family homes. Our Kensington office, for example, reported a dearth of family-sized properties on the market between Notting Hill Gate and High Street Kensington in the second quarter.”
Liam Bailey, Head of Residential Research for Knight Frank comments:
“With expectations for continuing employment growth over the next three months at their strongest since 1999, the prospects for the continued rental growth are good. The lettings market may be further boosted by the August interest rate rise which has made renting more affordable relative to buying. With monthly rental growth reaching 0.7% in July, we have raised our forecast for prime London rental growth from 2% to 4% for the year ending 2004.”
