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Prime Rental Markets in the Commuter Belt

Prime Rental Markets in the Commuter Belt
Prime Rental Markets in the Commuter Belt

18 April 2017, words by Lucian Cook

Smaller properties continue to see stronger rental growth than larger houses

Rental values in the prime markets of London’s commuter belt increased marginally by 0.7% over the first quarter of 2017 to bring five-year rental growth up to 8.4%. However, over the past year, rents have fallen -1.0% on average within an hour of the capital.

Continued divergence

Yet this average masks a divergence in rental growth between smaller and larger properties. Over the past year, rents for one and two bedroom flats have risen 2.1%, compared to falls of -4.1% for properties with six or more bedrooms.

 

Weaker demand from corporate tenants has been a significant factor in the price falls for larger properties. In particular tenants with the big budgets, looking for trophy properties remain relatively scarce.

But despite the annual falls in average rents and the market remaining price sensitive, activity levels are strong. This is predominantly evident for properties that have a high standard of fittings which are seeing an increase in applicants, while those that are tired are struggling to attract demand.

The price differential between prime London and the commuter belt has also been a driver of increased activity and demand from tenants. The average price per sq ft sits at £17 across the commuter belt in comparison to the prime London average of £38 per sq ft, highlighting the value on offer outside the capital.

FIGURE 1

Prime Rental Movements to Q1 2017

 
Figure 1

Source: Savills Research

Urban outperforms

A continuing trend seen over the past few years in both the rental and sales market is for properties in cities and towns to see stronger rental growth than those in rural locations. This has been particularly driven by demand from young professionals or new families to an area who are looking for properties with easy access to local amenities such as shops and stations. Demand from the latter group has tended to favour towns with good schools, such as Harpenden, Winchester and Cambridge, while being more reluctant to rent in surrounding villages.


OUTLOOK

Demand to continue

Looking forward, we expect demand for prime rental properties in key commuter locations of the capital to continue, driven by increasing numbers of people following the traditional relocation routes out of London. Accidental landlords – those unable to sell their homes – adding rental stock, as well as weak demand from corporate tenants, is however likely to curtail rental growth over the next five years.

Landlords will need to remain competitive on asking rent and flexible on terms, as well as ensuring the property is presented in good condition to ensure they attract tenants in the long term.

Across the prime commuter belt markets as a whole we expect rents to rise by 6% over the course of the next five years, outperforming the prime London market.

FIGURE 2

Prime Rental Markets – Five-year forecast values

 
Figure 2

*NB: these forecasts apply to average rents in the second hand market. New build rents may not move at the same rate

Source: Savills Research

 
 

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Key contacts

Lucian Cook

Lucian Cook

Director
Residential Research

Savills Margaret Street

+44 (0) 20 7016 3837

 

Kirsty Bennison

Kirsty Bennison

Associate
Residential Research

Savills Margaret Street

+44 (0) 207 016 3836

 

Jane Cronwright-Brown

Jane Cronwright-Brown

Head of Lettings
Residential Lettings

Savills One Church Road

+44 (0) 20 7824 9048

 

Tanya Blake

Tanya Blake

Head of Country Lettings
Residential

Savills Henley

+44 (0) 1491 843 002