PCL rents in check despite rising demand

Yearly rental value growth in prime central London was down again during June, according to a new report.

The investigation by Knight Frank revealed that annual rents were down by 3%, despite an increase in rental demand for properties in the capital. Large stock levels and uncertainty in the financial market is keeping this growth steady.

Economic and financial uncertainty

The report indicates that the rise in rental stock is partly down to the ongoing uncertainty in the sales market. Early figures are suggesting that some vendors are holding fire on letting their property until further clarity over Brexit is established.

However, demand remains strong and the number of new prospective tenants registered in June was the largest seen since September 2015. Meanwhile, the number of new tenancies agreed in June of this year was nearly the same as in May.

Tom Bill, head of the capital’s residential research at Knight Frank, said, ‘for investors able to see through the current bout of political uncertainty, there are also grounds for longer-term positivity.’[1]

Yearly yields

Gross yields in June stood at 3.1%, substantially greater than the current record-low yield on ten-year Government bond of around 0.8%. Bill notes that financial indecision has been heightened since before the Brexit vote, something he feels will cause tenants to rent for longer.

Bill observed, ‘more broadly, uncertainty over the result of the referendum has been replaced by uncertainty over the more nuanced question of the UK’s relationship with Europe and demand will strengthen further as clarity emerges surrounding key negotiating positions. As this process unfolds, it should be remembered that no candidate for prime minister has indicated any willingness to relinquish London’s role as Europe’s leading financial centre during negotiations with the EU.’[1]

PCL rents in check despite rising demand

Tax cuts

Chancellor George Osborne has suggested that he may move to cut corporation tax, meaning London will strive to stay competitive in comparison to other European cities.

Mr Bill feels that the possibility of an interest rate cut in Britain is likely to push activity up. He noted that the likelihood of further cuts by central banks in other countries will lead to overseas investors to look for higher returns on offer from rental property in London.

Concluding, Bill said, ‘this search for yield will be allied to a favourable currency play due to the current weakness of Sterling. Meanwhile, other fundamentals that remain unchanged after the referendum include the supply shortfall and projected population growth over the next decade in London, factors that will continue to underpin demand for rental property.’[1]

[1] https://www.landlordtoday.co.uk/breaking-news/2016/7/prime-central-london-rents-remain-in-check-despite-greater-tenant-demand