Prime London Residential Markets

Prime London Residential Markets
Pre-referendum performance

21 September 2016, by Kirsty Bennison

September 2014 marked a turning point in the market, especially for larger property



Performance by value band to June 2016

Figure 3


Capital and rental value movements by area to June 2016

Figure 4

Source: Savills Research


Q How did London’s prime rental market perform in the period prior to the referendum?

A In the five years prior to the EU referendum the London prime market has seen marginal rental growth of just 0.3%, with rents falling by -1.9% in the 12 months before the Brexit vote.

This is primarily a result of high levels of investment buying activity, which has brought significant supply to the rental market.

We have seen smaller properties continue to perform the most strongly given a deeper seam of needs-based demand, with a smaller pool of potential tenants for larger properties.

Q What are likely short-term impacts of Brexit on the prime rental market?

A Buyers’ caution is expected to push demand into the rental market in the short term, given the impact of higher stamp duty and concerns over job security in the financial and business services on peoples’ willingness to commit to a purchase.

On the supply side this is likely to be offset by a rise in accidental landlords and opportunistic overseas investors seeking to make a currency play.

Therefore, we expect the rental market to be more active but still price sensitive.

Q And how will the prime rental market be affected in the longer term?

A Long-term impacts on the prime rental market will be dependent upon the economic consequences of Brexit, most importantly on financial and business services.

Tenants in the financial sector currently account for approximately a third of the prime rental market in London, though this proportion has been steadily decreasing over the last 10 years as more diverse sectors such as Tech, Media & Telecommunications are attracted to the capital.

Oxford Economics forecasts a drop in the number of employees in the UK finance sector over the next few years, which may impinge on corporate relocation demand, especially in the mid-market.

Overall, we expect a flight to quality in the more expensive markets, while a more diverse demand profile for smaller property is likely to mean demand is less affected.

Q What does this mean for tenants? What will be the likely impact on them?

A The underlying uncertainty is expected to temper rental growth prospects, with tenants more budget conscious. Those tenants are also likely to be offered more choice, particularly given the high development pipeline in London and the potential for some of the new build stock to be re-directed to large scale institutional investors as managed rental stock.

Q What does this mean for landlords? What will they need to do?

A 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 both mainstream and prime tenants in the long term.


The rental market will be more active but still price sensitive

▲ The rental market will be more active but still price sensitive


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