The global pandemic has had the greatest impact on the London rental market since the financial crisis of 2008. The property market is cyclical, but the last year has displayed a very different dynamic.
According to Rightmove, the number of rental listings in inner London jumped by 139% in the last year. The surge in city-centre supply was caused by tenants leaving town and short lets changing to long lets.
For example, the ban on international travel during 2020 left many short-term rental properties, available through portals like AirBnB, unoccupied. Landlords had to offer their properties in the long-let market, significantly increasing the supply of available units.
City centres lose some lustre
Asking rents in some of the UK’s biggest city centres saw annual falls of up to 12 percent in the last quarter of 2020, reports Rightmove, as some tenants swapped urban centres for suburbs.
The gravitational pull of London has shifted a bit. Internationally, the number of university students matriculating is down as are corporate relocations. Locally, many people are moving out to the country or London suburbs.
Indeed, inner London saw the biggest decline in the nation, with average asking rents falling 12.4 percent year-on-year.
New patterns reveal opportunities
The pandemic has reshaped the patterns of our lives. Work isn’t a place any more; commuting as we’ve known it may never resume. Perspectives have changed so that we value our immediate surroundings as much as proximity to other attractive places.
The need for more space—with more family sharing it—and for coveted outdoor access has caused a significant disparity in the rental values of flats versus houses. In prime central London (PCL), flat rents dropped by eight percent while houses kept their value with only a slight annual price change of 0.2 percent, according to Lonres.
This brings a challenge for some landlords but also an opportunity for tenants, who may be able to make a longer-term decision and move into a city centre now, perhaps on a two-year tenancy agreement, at a more attractive rent than this time last year.
There is no doubt that higher rents will return once life goes back to some form of normality, but it will be city-centre properties with gardens and balconies that command the biggest premiums.
For clients who want to rent
You will have your choice of central London apartments at reduced rents. (Finding a family house with a good garden may prove to be a challenge in the capital.) It would be sensible to lock in a longer tenancy as prices will recover once international travel restrictions are loosened.
For current owners
For our investment clients with existing portfolios of flats in PCL, our advice is to take a long-term perspective to protect yields. Try to keep existing tenants, even it means recalibrating your price expectations, or reduce asking prices to attract new occupants. Also consider letting properties for six months to a year in order not to have long void periods.
Additional resources
‘London house prices: are there property bargains to be had in the big city?’ The Times Homes & Property 5 February 2021 (subscription may be required):
https://www.thetimes.co.uk/article/london-house-prices-are-there-property-bargains-to-be-had-in-the-big-city-zxndf9b5n
Rightmove’s UK Rental Price Tracker:
