January is a time for many families to address their property needs. Whether they plan to enrol their children in UK schools or establish a pied-a-terre in the city, Longview Advisors offers them guidance in the complex and competitive London landscape.
If you are looking for property to rent in prime central London, it helps to understand the context of this unique market.
What are the developments over the last few years driving supply and rental rates? What is the current outlook for landlords and renters?
A combination of factors is driving the high end of the market, including the return of international tenants, the desire for more space, the popularity of new-build developments, and, as always, changing economic factors.
The main story is that over the last few years, the demand for prime rental properties in central London has outstripped supply.
Compared to the typical conditions pre-pandemic, the number of available houses and flats to rent is low. There were 31% fewer properties available at the end of 2023 versus the end of 2019.
Because of the rise in interest rates, how profits are taxed, and changes in legislation regarding tenants’ rights, many landlords have been rationalising their portfolios or exiting the market entirely.
After a long period of success for the buy-to-let business, the economic advantage has dwindled somewhat since 2021. Average rental yields were still relatively low (4.7% in Q4 2023) historically, after hitting a low of 3.28% at the end of 2020 (source: LonRes).
Rental supply is further impacted as sitting tenants are forced to stay put. There will always be tenants moving out of London, but those who wish to stay aren’t likely to find—or even seek—alternative lodgings across town.
Current indicators paint a complex and dynamic picture
The volatility of the last few years may have settled as steep price rises and stock shortages are not so shocking.
For renters, it’s bad, but not that bad. At the £2,000+ per-week-level, stocks are down 11% (LonRes), which doesn’t sound particularly good. But compared to the precipitous fall of 62% in 2021, it may be a sign of optimism for renters.
Rents were up again at the end of 2023. According to Savills, the prime central London rental market saw a strong finish to 2023, with rents rising by 2.6% in Q4, bringing the annual growth to 11.9%. This was the highest annual growth rate since 2010, and well above the 10-year average of 2.4%. CBRE also reported a similar trend, with rents increasing by 2.5% in Q4 and 12.1% over the year.
That doesn’t mean that Prime Central London is asleep. According to LonRes, new instructions from landlords across prime London in the final quarter of 2023 grew by 13% compared to Q4 2022. But the number of lets agreed in 2023 was approximately 10% fewer than in 2022.
We may see a more balanced market with moderate growth in 2024. Forecasts of the average growth rate for rents in 2024 range from 2.5% to 3.0% in prime central London. The shortage of stock will keep rents bouyant over the short term, but such pressures are expected to stabilise and stock to gradually increase over the coming years with growth returning to historical levels.
Uncertainty is the only certainty
Keep in mind that the data collected and tracked by the big agencies and portals is from the institutional perspective rather than for informing consumers. These reports depict how the pendulum swings between landlords and renters through economic cycles. Since 2008, however, long-standing certainties about who is at an advantage have shifted.
A major factor we’ve all had to adjust to is uncertainty. The global economy and geopolitics have had a meaningful impact on investor sentiment. The upcoming UK general election, in which polls are forecasting a change of government at the national level, must also be taken into account.
That said, competition for high-end rentals in prime central London is always going to be fierce because they attract wealthy and discerning tenants who are willing to pay a premium for quality and location.
How renters can find an advantage
Given this context, there are opportunities to be found for whose with a strategic and creative mindset.
While we have no control over wars, inflation, interest rates or the changing political landscape, education and preparation are important and useful investments. Finding the right property requires research; securing a deal need persistence and negotiation skills.
Web sites and high street agents make it seem like there’s a limitless supply of apartments and houses to choose from. The truth is that the best properties are snatched up before appearing on the open market.
Longview helps clients navigate the market efficiently. There’s no effort spent going from one agent to the next, and time wasted trolling the Internet. We collaborate with clients to establish a brief, and then, through our searches of proprietary databases, phone calls with contacts and previews, we eventually whittle down the prospects to a tight list. We recently curated a tour for a client of eight candidate properties, half of which were not advertised.
Here are a few ways you can prepare for your rental quest:
- Think like an investor when weighing up risks of various properties.
- Have realistic expectations and don’t put all your hopes in one basket.
- Be decisive and ready to act, but stay flexible; be prepared to accept your second favourite option.
- Conduct due diligence, checking the context and quality of living in and around a property. For instance, construction works in progress in your dream building may take longer to complete than anticipated, which could add up to many more weeks (or even months) of your proposed tenancy.
At the end of the day, despite competition, regardless of the economic cycle, and discounting any gloom and doom you may hear from your friends, one thing remains true: landlords want good, reliable tenants.
That’s why it’s important to position yourself as an attractive applicant. Prepare your financing and have your documents in order.
Finally, the right professional advice can help you maintain perspective, balancing your head and your heart.
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