Over the past 18 months, the ‘mass’ migration of people leaving the UK’s cities and heading to the country for a ‘better life’ has been widely reported by the media.
More internal space for home offices and home schooling, more outside space for exercise and wellbeing, a stay-at-home policy from the government and a stamp duty holiday, propelled property prices and rents in towns and villages outside of capital cities. At the same time, average rents in London fell off a cliff and letting agents struggled to let empty properties. To add additional fuel to the fire, a significant amount of property became available which would have otherwise been available for holiday lets.
Average Rents in London
But what is happening to average rents in London now the capital is once again open for business? According to London sales and letting agent Chase Evans, rents are already back up to their pre-pandemic levels, and in some buildings, rents have hit all-time highs. Their seven London branches are now busier than ever.
Chase Evans report that since the end of lockdown, rents have increased by 25% to 30% on average. For example, one-bedroom apartments in a new development in SE1 which achieved £350 per week during the lockdown, are now achieving as much as £475 per week.
It’s a similar story for another development in Battersea, where manhattan (studio) apartments were renting for £360 per week during lockdown – deals are now being agreed at £450 per week, the highest price ever achieved for a studio in the building since its completion in 2017, the previous high was £390 per week.
So what is driving the rent increases? A lack of available rental stock causes it says their spokesman. “A year before lockdown, we were forecasting rents would increase over the next 12 months due to a lack of new apartments. Lockdown delayed the crisis and there are not enough apartments to satisfy the rental demand.” They also explained, “Average void periods are now just 3-7 days, with 95% of or new lets agreed before the apartment is vacant. For those investors monitoring their assets carefully, void periods of 2% will significantly drive the performance of their investment.”
Today, the vacant stock levels across all of their London branches are down 92% compared to last year. Their offices are now running waiting lists for new apartments and the shortage is so acute that they can only secure new lets for 8% of all their applicants.
Property Prices in London
According to the latest figures from the Halifax, property prices in London rose by 1.3% between August 2020 and August 2021. Across the country, there was an average annual increase of 7.1% for the UK over the same period. However, house prices in the capital remain nearly double the national average (£508,503 in London compared to £262,954 nationally) and according to Molior, the average price for a new build home in London Q2 2021, was £838 per ft2. Just nine developments in London have been completed at an average price below £400 per ft2 this year.
We anticipate that prices for rents in London will continue to increase as the fundamentals that drive house price growth are strong:
- Construction starts in London remain low, with 3,531 new apartments commencing construction in Q2 2021, compared to 2,710 in Q1 2021. (source: Molior)
- Interest rates remain at all times lows, with talk of increases investors may start to lock in low rates imminently
- Inflation is expected to rise sharply, history dictates that when this happens, investors turn to property
- Increased construction costs will be passed onto consumers, placing greater pressure on property prices
- Income growth – household incomes may grow for the first time in a decade as many of the economic headwinds caused by the GFC in 2008 and the uncertainty caused by Brexit are behind us.
- Job vacancies are at a record high and consumer confidence is returning to pre-pandemic levels.
You can read more detail about why property prices in London are set to soar, here.
Summary
With London rents at pre-pandemic level, low void periods and the anticipation of property prices increases in London, smart investors will be considering London as the location of their next investment. Prices haven’t risen exponentially over the past 18 months in the capital, meaning there is still room for growth for all the reasons we’ve set out above.
Rents will continue to rise due to the lack of supply of new developments and the exedous of UK domiciled landlords selling their properties due to the recent tax changes. So, for investors looking to enter the market now, they are unlikely to go wrong when looking at London.
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