Rents fell by 0.8% in prime central London in July, taking the annual decline to a modest -1.1%.
However, as Liam Bailey, head of residential research at Knight Frank explains, weak performance in headline rents is disguising notable improvements in lettings volumes.
“We have noted how rents have been edging down in prime central London (PCL) since October last year. The rate of this decline has been fairly sedate, and while July’s 0.8% fall marks the biggest decline since monthly records began in April 2011, rents in PCL are still 25% higher than the trough of the market in the second quarter of 2009.
“There is no doubt that the prime rental market has been affected by the downturn in financial sector employment caused by the slowing UK economy and the Eurozone crisis over the last year. Recent figures from the Centre for Economics and Business Research (CEBR) suggested the number of finance jobs in the City of London had fallen to 255,000 this year, down from 354,000 in 2007.
“Despite this unsettled background, July saw a noticeable upturn in the lettings market in volume terms, with 30% more tenancies being agreed compared to the same month in 2011.
“July also saw a reversal in the trend towards weaker new applicant and new viewing volumes, which had been seen in the first half of 2012. New applicant volumes were higher by 2% in July year-on-year, and viewing volumes were higher by 13%.
“The supply of rental properties coming on to the market, which rose earlier in the year, stabilised in the three months to July, but with just a 0.7% increase compared to the same period in 2011. The ratio of new applicants to new instructions stood at 3.0 in July, down marginally from the 3.3 seen in July 2011.
“Despite the headline rental decline, some areas are seeing rental growth, with rents in the City of London increasing by an average of 0.6% during July (up 2.1% over the past 12 months), while rental growth in Notting Hill hit 4.5% in the year to July.”
Tim Hyatt, Head of Knight Frank Residential Lettings, comments: “The data shows a more negative picture than our results. Savvy tenants have seen the Olympic period as a good time to look for property as getting around and normal daily life has not been as problematic as predicted.
“Knight Frank’s Residential Lettings team have recorded extraordinary results for July, making it the best month on record for us. This doesn’t take into account the income generated by the Olympic lets achieved, which have been far less than the hype predicted.
“It would be wonderful to see these strong results continue into August, but at one week in it is too soon to predict the impact of the Games one way or the other. If there is a short term delay I think it will have a positive knock on effect to what is normally one of the busiest months of the year already.”