The prime central London rental market continued its recovery in August, as uncertainty surrounding next May’s general election turned more prospective buyers into tenants.
It is not happening to any significant degree but a growing number of buyers are adopting a wait-and-see approach regarding the next 12 months as growth slows in the sales market. For the same reason, sellers are increasingly exploring the possibility of becoming landlords in the short-term.
Price growth is slowing due to uncertainty surrounding the outcome of the general election and the possibility of tax changes in relation to high-value residential property. The likelihood of an interest rate rise before the election is adding to the mood of uncertainty.
By the end of a 12-month tenancy signed in August 2014, landlords and tenants will have a clearer outlook, three months after the general election and in a relatively normalised interest rate environment.
The trend contributed towards more milestones being passed in the prime central London rental market in August. Rental values rose for the sixth consecutive month, which was the longest run of growth in three years. A rise of 0.5% in August pushed the index to its highest level since November 2012 and meant annual growth was 1.2%, the highest rate in more than two years.
In addition, rental yields increased for the second consecutive month to 2.82%, the first time that has happened since the middle of 2011.
There is also a more fundamental change taking place in the London market that is likely to underpin rental values in future. A lower degree of stability in the labour market since the financial crash and the emergence of London as Europe’s dominant centre for technology businesses have created a more footloose workforce.
The percentage of telecoms, media and technology workers using Knight Frank Corporate Services in the year to April 2014 was 11%, ahead of oil & gas (6%) and retail (6%) and third only behind finance (29%) and law (13%).
