Higher activity levels in the prime rental property market in central London have put downwards pressure on rental values, which has boosted affordability for tenants, according to analysis from Knight Frank.
It mean that the negotiation position of tenants in this lettings sector has strengthened over the course of this year and the number of tenancies agreed in the three months to November was 23.2% higher than the same period in 2015.
The prime central London rental index report from real estate firm also shows that the average gross rental yield was 3.18% in November and average rents fell by 5.2% in the 12 months to the end of November 2016.
Overall, annual rental value growth declined by 5.2% in November, which is the weakest it has been since December 2009. However, the firm forecasts that this will ease to a fall of 2% in prime central London West in 2017 and remain flat in prime central London East.
But there is variation in the market. In City and Fringe annual rental growth was stagnant while in Kings Cross it increased by 0.3% and in Tower Bridge by 0.1%. Rents fell year on year in all other parts of prime central London.
The decline has been led by Riverside where rents are down 9.3%, followed by Hyde Park down 9%, Marylebone down 8.8%, Notting Hill down 8.6%, Knightsbridge down 7.3%, Belgravia down 7.1%, South Kensington down 6.3%, Chelsea down 5.4%, Islington down 4.2%, St John’s Wood down 3.3%, Mayfair down 3%, and Kensington down 3.3%.
The firm also reports that the number of viewings and new prospective tenants increased by 18.4% and 7.8% respectively over the same period and despite a moderate slowdown ahead of the Christmas holiday period, the number of deals in the three-month period was 23.2% higher than in 2015.
The seasonal dip in November, which was aggravated by uncertainty surrounding the US election result, followed two successive record months for Knight Frank for tenancies agreed in August and September.
According to Tom Bill, head of London residential research at Knight Frank, higher supply is the result of increased regulatory uncertainty in the sales market, which has meant a growing number of vendors have opted to let their property rather than sell until more clarity emerges surrounding future pricing trends.
He also explained that the pattern of higher deal volumes is more marked below £1,500 and above £5,000 per week, while activity remains weaker in between, a section of the market traditionally driven by senior executives in financial services.
“While broader uncertainty persists over issues including the UK’s decision to leaves the European Union and the election of Donald Trump, the extent of the cost pressures faced by banks was underlined in November when several banks failed to meet certain Bank of England stress tests,” he pointed out.
He added that while there is a sense any future headcount reductions are unlikely to match previous redundancy rounds which have followed similar tests, optimism levels remain down on a year ago, according to data from Pricewaterhousecooper and the Confederation of British Industry.