Prime central London rents decline easing with values set to rise 0.5%

Average rents in the prime central London residential lettings market fell 2.1% in the year to January 2018, the lowest rate of decline since April 2016, according to the latest industry analysis. The report from international real estate firm Knight Frank says the slowdown in declining values suggests that the falls recorded over the last two years are bottoming out. Knight Frank is forecasting that average rental values will grow by 0.5% in the prime central London market as supply rebalances. Leading indicators of demand underpin this forecast, according to Tom Bill, head of London residential research at Knight Frank. He pointed out that the number of viewings was 17% higher in 2017 than 2016 and the number of new prospective tenants registering was 16% up on the previous year. He explained that falling rents are the product of high levels of stock which were largely a product of uncertainty surrounding the short term prospects for price growth in the sales market, prompting owners to let out their property rather than sell. However, there are indications that the lettings market is poised to tip back in favour of landlords as stock levels moderate and there has also been a 5% increase in the number of tenancies agreed in 2017 compared with 2016 while Knight Frank agreed 12% more tenancies last year than in the previous year. According to Bill there has been a natural re-balancing of the market as lower rental values mean more landlords decide to sell. Also, the sales market has begun to strengthen as higher transaction costs become more fully absorbed. The research also show that the number of new lettings properties listed in the final quarter of 2017 fell by 19% year on year, according to Knight Frank data. It was the largest such fall in seven years. The analysis also demonstrates that high levels of supply in recent years are in large part attributable to a 49% year on year increase in the second quarter of 2016, a period that followed the introduction of a 3% stamp duty surcharge for landlords. It was the biggest jump since 2008 and kept stock levels comparatively high over the following 12 months.