Trends

Activity in prime London and the commuter belt

White paper overview

Four current trends

1. Elevated levels of demand and supply shortages have lifted prime rental prices in London and its commuter belt by 10.3% and 5.1% so far this year.
2. A slight uptick in new supply coming to the market has been outweighed by the sheer number of potential tenants seeking a property.
3. In the commuter belt, an average of six people were chasing every property Savills had for rent in August this year. In London it was nine.
4. The amount of stock to rent in August remained 33% below 2019 levels in London and 37% below the same benchmark in the commuter belt.

And four for the future

1. Although we expect an increase in accidental landlords, supply shortages are predicted to remain a lasting feature of the rental market.
2. Some investors will be put off by interest rates, regulation and energy efficiency improvements, giving opportunities for longer-term landlords.
3. We expect short-term rental growth for London and the commuter belt, driven by an ongoing imbalance between supply and demand.
4. The challenging economic backdrop and cost of living will limit growth over the next 12 months, as tenants become more budget conscious.

London

Demand and rental growth
The number of prospective renters continued to rise over the summer. Savills registered 70% more applicants in August compared to August 2019. Consequently, prime rental prices in London increased by 14.0% in the 12 months to September 2022. Rents in central London have benefitted from the return of international tenants, students and corporate relocators.

What we're seeing

Rental values in London’s flat market have recovered strongly, with rents up 15.5% over the past year. This represents a strong turnaround, as a surplus in available rental stock has rapidly turned to a shortfall. While houses have seen slightly lower rental growth in the past 12 months, over the period of the past two years they have seen the strongest overall growth of 15.5% given the more consistent demand for larger family homes during this period.

Best performing locations

North West London, from St John’s Wood to Hampstead, was the strongest performing region in the past year. Here, demand is being driven by corporate relocators, families and students.

Commuter belt

Demand and rental growth
In August, Savills registered 60% more people looking to rent within an hour of London compared to 2019. This pushed up prime rental prices by 7.2% in the 12 months to September 2022. Although rental growth looks to be levelling out after a sustained period of increases, some hotspots are still outperforming.

What we're seeing
Over the past year, growth has been led by properties in towns (+8.5%) as connectivity and commutability are increasingly important to key tenant groups. Rents in surrounding village and rural locations (which performed more strongly during the initial race for space) increased by 5.0%. There have been more corporate relocators and young professionals renting here in recent months. However, demand from accidental tenants and the try before you buy brigade is beginning to soften.

Best performing locations
Areas with the strongest quarterly growth include Sunningdale (+4.5%), Cobham (+4.2%) and Winchester (+3.0%), all of which are attracting a wide range of tenants, including families wanting to be close to schools.

• Removal of the right for a landlord to serve an incontestable two-month section 21 notice to quit at the end of a fixed tenancy term. Landlords would have to rely on specific statutory grounds to recover possession of their property.
• Grounds for repossession will include repeated serious rental arrears and the landlord’s desire to either sell the property, occupy it themselves, or allow it to be occupied by close family members.
• Rule exemptions include residential tenancies where the rent exceeds £100,000 per year and lettings to corporate tenants.
• A new ombudsman will have the power to fine landlords up to £25,000 and require privately rented homes to meet the decent homes standard.
• A once-a-year rent review, by landlords proposing rent increases, based on changes to market prices.

Some changes would replicate measures undertaken in Scotland five years go. These have not created major issues, especially where there is good communication and an understanding of a tenant’s requirements.

All eyes will be on how the new government embraces these proposals.

FURTHER INFORMATION

Understanding the Renters (Reform) Bill