According to Knight Frank, rental value growth in affluent London postcodes is still firmly in the double digits as long as demand outpaces supply.
In contrast to a drop in new listings of approximately a third in October, the number of new prospective tenants was 60% higher than the five-year average (excluding 2020).
This disparity led to average rent increases of 17.8% in affluent central London (PCL) and 15.4% in affluent outer London (POL) in the year leading up to October.
Since the second quarter of 2021, when landlords sold properties to capitalise on the robust sales market, and more properties transitioned to the short-let market as Covid rules were loosened, the market has been experiencing a supply deficit.
However, there are early indications that the supply of rental stock is growing, a trend that is now limited to higher-value properties, as the outlook for the sales market becomes more dubious. These are frequently sellers with greater discretion who can ride out times of economic unpredictability by renting out their house.
Market valuation appraisals are a reliable source of supply information, and for houses worth between £1000 and £5000 per week, the number was 17% higher in October than it was in January. The number of houses priced under £1,000 decreased by 24%.
“My sense is that we are approaching the end of the period where supply and demand are completely out of step,” said David Mumby, head of prime central London lettings at Knight Frank.
“It’s not in every location yet, or in all price ranges, but there are more properties coming across from the sales market and in certain arears some asking rents are starting to soften, which we haven’t seen for many months.
“We are carrying out more appraisals together with our sales teams as owners explore all options. The moderate growth of 6% forecast next year looks more appropriate than the double digit rises seen over the last 18 months.”
In Prime Central London, the average gross yield increased to 3.72% in October, the highest level since June 2011. In Prime Outer London, the average increased to 3.74%, which was the highest level.