London’s booming rental market could be slowing

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Residential property rents in central London fell in fourth quarter of 2011, says report

Evidence is growing that a boom in property rents in central London in 2011 is slowing and some landlords could face increasing pressures in 2012.

Residential property rents in central locations in London fell back in the fourth quarter of 2011 after a period of consistent growth, according to the latest market report from Cluttons.

The company says that after a remarkable period of consistent growth which saw rents reach a level 10.3% above the market peak in 2008, rents fell by 0.4% in the last three months of 2011.

It says rents are expected to fall going into the Spring as the spike in prices was a result of a serious shortage of supply and that is now readjusting.

Also a lack of promotion and nervousness over job prospects in the City has lead to increased price sensitivity among tenants and, consequently, greater flexibility from landlords, who are keen to keep good quality tenants in place and minimise void periods.

Reduced budgets and the slashing, or withdrawal, of corporate Housing Allowance have enticed tenants and relocation agents to consider locations such as Islington, in search of lower value properties that still have strong commuter links to the City, says Cluttons.

Some prime central London landlords are adjusting their expectations and accepting lower offers. There has also been an upturn in the number of sharers around the capital who are looking to contain costs while benefiting from living in central locations, such as Hyde Park.

‘The remarkable growth in rental values seen last year could not continue and this correction in values will bring the market back to a more stable level,’ said Lynn Hilton, partner for residential lettings at Cluttons.

‘While there is considerable economic uncertainty, we don’t anticipate a drastic reduction in rents as demand is still high, but tenants will undoubtedly welcome increased choice and negotiating power,’ she added.

It is the second report in a few days that has indicated that rents are falling. Last week the Association of Residential Lettings Agents (ARLA) said that an easing in the demand for rental property and a rise in the numbers of tenants struggling to meet their monthly rent was in danger of leading to a softening of the market.

In the fourth quarter of 2011 just over half, 55%, of ARLA members reported more tenants than properties available, sharply down on the third quarter when three quarters, 74%, of members noted that trend.

‘The apparent drop in demand for rental properties could be due to the traditionally quite pre-Christmas period. At the same time, it could indicate a reversal of the surge of new tenants who turned to the PRS when they could not afford to buy,’ said Tim Hyatt, president of ARLA.

‘With household income decreasing and job uncertainty prevailing, it could be that increasing rental arrears is a sign that the wider economic malaise is having a tangible impact on personal finance. Some consumers may have reached the limit of their access to finance, while others may be cutting back as many commentators have predicted,’ he explained.

‘We are reassured by the fact that the number of new tenancies is stable, but we will be watching the market closely in the coming months to determine how significant these latest figures will prove to be.

‘In tough economic conditions both landlords and tenants can find themselves struggling to keep up with rent or mortgage payments. It is therefore more critical than ever to take references and conduct thorough research before signing a tenancy agreement. Seeking advice from a professional, licensed letting agent is the best way to ensure tenants and landlords’ rights are protected,’ he added.

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