Across prime London, rents grew by a further +0.5% over Q3, but annual growth dropped to +1.4% on the year. While quarterly growth dipped into negative territory (-0.1%) across the prime regional markets, pushing annual growth down to 1.8% by the end of September. The lowest rate of growth since June 2020.

Source: Savills prime London and prime regional lettings indices, Q3 2024

“Best-in-class stock is still moving quickly, but broadly there is much less urgency in the market. This has resulted in some stock sticking and causing price corrections across some parts of the market,” comments Jessica Tomlinson, research analyst at Savills.

“Rental values in prime central London experienced the most downward pressure over the past three months. Demand in this market is much more international and typically more discretionary than in other parts of the prime rental market.”

“However, this market is also less exposed to disruption from rental reform, and the market may benefit from any changes in “non-doms” tax status, which may tip the buying versus renting dilemma towards the latter.”

Smaller, lower-value properties hold up the strongest

Growth in rents for smaller, lower-value flats has remained the most robust, compared to higher-value houses, a reversal of the trend seen over the previous quarter.

Flats in the west of London have performed the strongest – driven by demand for locations such as Chiswick and Ealing. As well as regional towns and cities – including Birmingham, Harpenden and Reading – while there has been a more pronounced dip in suburban markets.

“Cyclical student and professional demand have been the driver in growth for smaller and lower value properties, particularly in popular university towns and cities. But the prime market is coming up against affordability barriers after years of significant increases to rental values.”

Misalignment on price expectation

But, despite rental growth slowing, tenant and landlord expectations on price are widening. While agents in London broadly agree (75%) that tenants expected rents to fall over the past three months, almost as many (61%) agree that landlords expected prices to rise. A gap remains in the regions, too, albeit less stark.

“Although mortgage rates have started to ease, landlords continue to face an upward battle with potential changes to Capital Gains Tax and more stringent EPC criteria incoming from the new government. As a result, some remain reluctant to ease rents despite weakening demand in some markets.”

“As a result, it’s taking longer for deals to be agreed. Realistic pricing will become increasingly more important for the remainder of the year when demand is typically at its lowest, and tenants have the most choice.”