Prime residential rents in central London have fallen sharply in the last three months, the largest drop since 1995, according to a new report.
Knight Frank’s latest index shows that rents have now fallen for three consecutive quarters taking them back to a level last seen in March 2007.
They fell by 9.6% over the last three months and by a total of 12% over nine months. Capital values are falling even more rapidly and consequently rental yields are continuing to rise, now standing at 4.2%, compared to 3.9% a year ago
‘Prime residential rents in central London have fallen dramatically over the past three months, by 9.6% which is by far the biggest fall ever recorded by our index which was created in 1995. To put the figures in perspective, the drop of 2.1% recorded in September 2003 was the previous largest biggest decline on record in prime central London,’ said Liam Bailey, head of residential research at Knight Frank.
He said there has been an increased demand for rental property, the result of many people choosing to delay house purchase, but this has been outweighed by the sheer amount of new stock coming onto the market, much of it from ‘forced landlords’ unable or unwilling to sell their property in the current market.
‘This has combined with downward pressure on corporate and personal budgets, pessimism over the short-term future of the economy and mounting job losses in the key financial services sector to markedly drive down rents,’ he explained.
The research shows that there are three times as many properties on the market than this time last year. ‘It is not easy to tell clients that they need to drop the price of their property by at least 15%, if not 20% to 25% for larger properties,’ said Tim Hyatt, head of UK lettings, Knight Frank.
But the analysts are upbeat about the letting business for 2009. ‘We expect the lettings business to continue growing next year. Renting has become an acceptable medium-term option for many people and its flexibility will continue to appeal as the economic downturn continues,’ he said.
‘The changing climate will also make investment more appealing for rental returns alone. Landlords can be cautiously optimistic but need to be very flexible as they enter the New Year if they are to prosper in this difficult market,’ added Hyatt.
