Although tenants remain cost conscious, the reduction in stock means competition has increased for properties.Nick Barnes, Head of Research
London's prime residential lettings market continued to improve during the third quarter, albeit conditions remained testing. Tenant demand increased, reflecting continued employment growth and ongoing affordability issues preventing access to the sales market.
Compared to the second quarter, new applicants registered rose by 29% while agreed deals were an impressive one third higher. On an annual basis, growth was less robust but still healthy: in the year to end September, new applicants registered rose by 13.5% compared to the corresponding period in 2013 while agreed deals were 4.5% up.
Employment has been growing fastest in central and inner London due to the fact that financial services and related business services tend to concentrate in these areas. Morgan McKinley estimates that new jobs in financial services rose by 1.4% in Q3 compared to Q2. Staff in these sectors are generally better paid which has benefited the prime lettings market. According to Morgan McKinley, the average salary increase for those securing new jobs in financial services in September was 19%, compared to 17% in August and 16% in September 2013. Nonetheless budgets remained constrained, including those employees on corporate packages, and tenants want and can obtain what they consider to be value for money – especially those wishing to save for a deposit on a house purchase. Relocation referrals tailed off during the quarter, highlighting the fact that companies continue to keep a tight rein on expenditure.
In contrast, the supply of available stock to rent continued to decline. Quarter end available stock was a sizeable 28% down on the previous quarter end figure and 22.4% lower than at the end of September 2013. Availability tends to be higher for larger properties which carry higher rent tags while one and two bedroom flats are correspondingly easier to let. The reduction in stock was partly due to the pick-up in new lettings but additionally reflected a fall in new instructions (1.4% down on the previous quarter) as existing landlords continued to reduce their portfolios and fewer new landlords entered the market. Stock disposals reflected a combination of landlords realising capital gains on long held properties, low yields, more onerous borrowing requirements from lenders and a desire to reduce debt exposure.