According to LCP's data which covers Q2 2021, properties available for let has seen a downward trend over the past 12 months. Reflecting greater demand, there are 35% fewer flats available than at the peak in June 2020, leading to a reduction in the time taken to let properties and helping reduce the rental discounts demanded on re-lets.
A key indicator of rental demand is the number of enquiries received for each property. With the easing of restrictions, Q2 2021 witnessed significant growth in interest from renters. In June, the average property received double the online enquiries compared to a year ago.
In Q2 2021 new rental applicants were less selective in their search within prime London. Nearly 40% of applicants were happy to move to any neighbourhood compared with only 6% in Q1. Increased demand has resulted in applicants prioritising pricing over specific locations. For prospective tenants who did specify, Marylebone remained the most popular choice.
Increased demand has meant properties for rent have remained on the market for a shorter time. At 50.4 days, the time taken to let a vacant property in Q2 2021 was 20.8% faster than in Q1 2021 and 31.9% quicker than the peak of 74.0 days in Q4 2020. The levels remain above the pre-pandemic historical average of 27.3 days but are forecast to continue decreasing.
Agreed rents on re-lets in Q2 2021 improved from Q1 2021, with an average discount of 9.2% in comparison to 13.1%. Increased rental demand has created a more competitive market reducing the discounts that were previously being negotiated. Further, June saw average discounts of 6.55%, the lowest rate since the beginning of the pandemic.
Historically, tenants paid increases on passing rents when renewing for another year. In Q3 and Q4 2020, savvy tenants negotiated discounts. More recently, with reduced available stock and less leverage, tenants have been renewing at near passing levels. June witnessed the first month since the start of the pandemic where on average, no discounts were granted on renewals.
Andrew Weir, CEO of London Central Portfolio, comments: "The prime London rental market has benefitted from a broadly improving environment as witnessed throughout Q2 2021. Whilst total ‘normality’ has not yet been achieved, there is a clear rebalancing process underway that can be seen from the data on our managed portfolio.
"Q2 continued to see shorter void periods with increased tenant demand. We are already beginning to see an increase in enquiries for tenancies with August start dates, as companies plan for the return to the office in one form or another as well as students looking to continue their studies. We anticipate these factors will contribute to a continuing downward trend in vacant periods between tenancies during Q3.
"This increased activity has inevitably affected the agreed rent levels for renewals which saw no discounts in June. We experienced an average discount of 9.2% for re-lets in Q2 improved from 13.1% in Q1. With the quantity of stock available for let reducing, tenants now prioritise competitive pricing over location with an open-minded approach to specific locations within prime London.
"The lettings market is often a leading indicator of the direction of travel for the London property market and where capital will undoubtedly follow. London remains an extremely attractive destination for many individuals for residency, education, business and leisure. Our Q2 lettings results are particularly encouraging given that international travel restrictions were still substantially in place."
