Average rental values in London steadily declined in August as weaker-than-normal seasonal demand was met by higher levels of supply.
The latest data from Knight Frank found that average rental values in the capital fell 1% in August, taking the annual decline to 6.9% - the largest decrease since Q4 2009, when the global financial crisis was beginning to deepen.
Rental values in prime outer London (POL) also fell by 0.4%, producing an annual slump of 5.9%.
Activity in the lettings market has been robust since the reopening of the property market in mid-May and the number of new tenancies in August was 9% above the five-year average. However, higher levels of supply and weaker levels of demand has had an impact on rental values.
Between April and August, the number of market valuations carried out by Knight Frank for the lettings market was 37% higher than last year, as more owners initially decided to let rather than sell. Supply was also amplified as more short-term lets came onto the market.
Over the same time period, the number of new prospective tenants fell 26%, creating a downward pressure on rents.
Although students in particular faced uncertainty around the start of the academic year in light of the coronavirus pandemic, many are deciding to take advantage of falling rents. Knight Frank says this may, in time, lessen some of the downward pressure on rents.
Viewings reached a 10-year high towards the end of August and remain strong over the last fortnight.
What’s more, the ratio of demand to supply has picked up since lockdown ended, with the number of new prospective tenants for every market appraisal rising from 3.7 in April to 5.6 in August. The average figure was 7.8 between April and August over the last two years.
Average prices in PCL reach five-year peak
Average prices in higher-value London areas grew by the most in five years in the month to August, caused by resurgent levels of activity since the market reopened in May.
Prices lifted by 0.3%, the highest monthly rise since July 2015, the month that also marked the last high point for prices in PCL. After a bounce that followed the May 2015 general election, the impact of a stamp duty hike in December 2014 began to put downwards pressure on prices.
It was a similar story in prime outer London, where average prices rose 0.5% in August – the highest rise since June 2015. The quarterly rise was 1%, which compared to flat prices in PCL. The out-performance in POL reflects the growth in demand for outdoor space and greenery since lockdown was lifted.
Since the summer of 2015, prices in PCL have fallen by 17%, while POL saw a decline of 13%.
With these declines more marked than anywhere else in the UK, Knight Frank says there is scope for price rises in future years, as told in its latest UK property market forecast.
In addition to the recent ‘weak’ performance, buyers in higher-value markets are more likely to be protected from the economic fallout of the pandemic including any labour market weakness and tighter lending conditions.
The lifting of international travel restrictions will further boost prime London markets, particularly in areas popular with overseas buyers such as Knightsbridge and Mayfair. Prices in both markets were flat in August after respective annual declines of 4.5% and 5.8%.
This may coincide with more buyers acting on the fact that a 2% stamp duty surcharge will be introduced for overseas buyers next April.
Despite uncertainty over what Q4 will bring, activity levels have been strong over the traditionally quieter summer months as pent-up demand is released. The number of offers accepted during August was the highest total in more than 20 years.