Demand and economic recovery signal growth in Prime London rents from 2014

LONDON: Prime central London rents have fallen 2% year-to-date (YTD), pushed down further by the 0.3% decline in November from last year.

However, London’s rents are expected to rise 2% in 2014, according to Knight Frank’s Prime Central London Rental Index published for November 2013. For the past 18 months, prime central London rents for luxury homes have been declining or remaining flat.

“The performance of London’s prime rental market has traditionally been linked to the health of the financial sector, which is still reeling from mass layoffs at banks and other financial firms in 2010 and 2011,” said Knight Frank’s associate of residential research, Tom Bill.

“This downward pressure should ease next year when we expect rents to rise by 2% in prime central London, fuelled by job creation and increased economic optimism in the City.

“As a result, we expect prime central London rents to outperform other markets over the medium term, rising 18% between 2014 and 2018 versus 16% in the UK and 17% in prime outer London,” he said.

On the other hand, demand for rented accommodation in London is on the rise. The number of new rentals in the year rose 18% from last year, with new viewings and applicants up by 8% and 9% respectively.

The employment outlook in London continues to improve against a background of growth forecasts that many economists are revising upwards. According to the Markit Economics report on jobs, the number of employees placed in permanent positions by London-based recruitment consultancies rose for a fifth straight month in October.

“While bank employment remains under pressure, demand is emerging from alternative sectors including technology, media, telecoms and the legal profession,” said Bill.

The improving data on the London economy are positive for the rental market in which the index is still only 5% below its all-time high in September 2011 and a fifth higher than the post-Lehman low in the middle of 2009.

By price band, the £500 (RM2,643) to £1,500 per week price bracket saw a 0.2% decline in November compared to the previous month and a decline of 2.7% YTD. By comparison, properties in the £1,500 and above per week bracket fell 0.5% in November and have fallen by 1.6% in 2013.

However, there are some growth areas despite the headline figure indicating falling rents. Hyde Park rose 0.4% and Marylebone was flat in November, but rose 2.2% YTD.

This article first appeared in The Edge Financial Daily, on December 6, 2013.

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