The London rental market – our forecast for 2014

Demand for rental homes in London remains strong and is likely to remain so in 2014 due to the lack of housing supply generally coupled with high demand from corporate tenants, international students and locals who cannot afford to buy. Despite the support offered by the Help to Buy scheme, home ownership is still beyond the reach of many in the capital due to the high cost of property.

Rental demand set to remain high in 2014

A recent survey published by a major estate agent revealed that renting is more affordable for Londoners than buying a home in all but one London Borough. In 23 out of 32 London Boroughs, renting is at least 10% cheaper than buying while increasing property prices mean that four London Boroughs – Ealing, Greenwich, Lewisham and Southwark, have recently moved into this category over the last year. The cost of renting rather than buying has dropped due to the increase in house prices, particularly in central London. As a result, we expect rental demand to remain high in 2014.

The trend towards renting is also a lifestyle choice for many who prefer not to be tied to a long term mortgage as their career is suited to a more flexible type of accommodation.

Number of tenancy renewals likely to continue to increase

We’re seeing a trend towards tenants taking longer tenancies or renewing tenancies as they seek more certainty in a competitive market. We expect this to continue as both tenants and landlords opt for greater stability.

Rent increases flat in 2013

However, rents have been flat recently with minimal rises and in some sectors have even fallen, while tenants are taking a little longer to choose a property. In outer areas of London, demand for smaller units remains strong although there have been minimal rent increases and we expect this picture to remain similar in 2014.

In central London, larger properties (4 beds+) at rents over £2,500pw have experienced longer voids and rents are down by as much as 10%. Smaller properties in central London (1 – 3 beds) have seen rents flat and again, I expect this to remain the same in 2014. So with further rising capital values forecast into 2014, yields will shrink even further with prime central London seeing the lowest yields.

Positive outlook for rental increases in 2014

However we see potential for rental increases as earnings start to grow as the economy picks up in the coming months. In addition, the Office of National Statistics reports that in the last year London’s population has increased by 104,000, further increasing rental demand and exacerbating the shortage of supply. We also expect there to be a reduction in ‘accidental landlords’ over the coming months as landlords who had been waiting for the property market to recover, are now likely to sell. This will reduce housing stock over the coming months and support rent levels.

There is increasing demand for rental properties in areas that fringe the City such as Greenwich, Poplar, Bow and Lewisham where there are many new schemes being launched. We expect demand in these areas to remain strong in 2014 as tenants continue to seek value for money. High demand in these areas is pushing rents up more quickly than in traditionally popular areas.

Overseas investment in London property remains high

Investment in London property by overseas investors remains very high, with some real estate agents reporting that overseas buyers account for over 80% of sales in some prime London postcodes.

London rental demand 2014 – in a nutshell

Overall, our view for 2014 is that the positive outlook for the economy will mean renewed confidence, especially in the City, leading to increased demand from tenants and possibly a modest rise in rents. The London rental market should continue its positive upward course and we are looking forward to another good year.