Research article

Rental falls subside

There are encouraging signs for the rental market, although performance differs widely across the sector

Over the course of 2018, the rental value of prime London property fell by 0.8% – a distinct slowing in the rate of annual falls that have affected the market since March 2016. Within this, less expensive properties fared better than their more expensive counterparts, continuing a trend that has been evident since the financial crisis.

There continues to be a deeper seam of demand for smaller properties driven by needs-based, younger tenants yet to access home ownership

Savills Research

We are seeing that footloose, cost-conscious tenants have been drawn to prime areas that offer greater value, rather than confining their search to premium addresses. Consequently, rents in central London have fallen 3.2% in the past year and 13.8% in the past five. Meanwhile, rents across the other prime London markets held their own in 2018 (increasing by 0.2%) with a fall of 2.7% over the past five years.

In addition, there continues to be a deeper seam of demand for smaller properties across all of the capital’s prime markets driven by needs-based, younger tenants who are yet to access home ownership.

Figure 1

Rental growth in London’s prime housing markets (to Q4 2018)
Source: Savills Research

In the commuter zone

Robust demand for smaller properties has also been evident in the prime rental markets throughout London’s commuter belt. With less competing supply entering the market from the new build sector, rents for properties of three or fewer bedrooms have continued to increase.

Larger properties, for which demand is notoriously fickle, have not performed as well, with small rental falls in 2018. In the past five years, rents on properties with six or more bedrooms have decreased by more than 9%, whereas rents for one- or two-bedroom properties have increased by more than 11% during the same period.

Figure 2

Rental growth of prime property in the commuter zone (to Q4 2018)
Source: Savills Research

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