Rents in prime central London rose for the third consecutive month in May as growth took hold in the lettings market after a two and-a-half year decline.
The change over a six-month period was positive for the first time since January 2012 and rental values climbed back to the level recorded at the start of 2011, about nine months before the last peak.
Rental values grew 0.2% in May, which meant the annual decline narrowed to 1.4%, the lowest figure since July 2012. Despite the growth, a full-blown upswing is not yet underway and half of Knight Frank’s prime central London offices reported an increase while the other half reported that rents were flat or falling in May.
The signs are encouraging, however.
The first is that the number of new lettings registrations in the first four months of 2014 is 17% higher than the equivalent period last year and 48% higher than 2012. Demand is coming from a range of industries, including oil and gas, IT and mining, sectors that have all experienced relatively strong performance in the last six months.
The recovery in the banking sector, which has traditionally been a strong source of demand, is still tentative.
The second positive sign is that demand appears to be softening in the sales market, with applicant registrations in May 2014 about a third down on the same month last year.
A prolonged period of strong growth combined with growing talk of a price correction means buyers have become sensitive to high prices in prime central London, which mirrors a trend in the mainstream market.
As the sales market pauses for breath, it is starting to benefit the lettings market and several high value deals have been struck in recent weeks.
In previous cycles this has translated into more buyers deciding to rent and more vendors becoming landlords, though there is no evidence of this trend yet.
A further boost to the lettings market will come in the summer with the seasonal inflow of students before the start of the next academic year.
