Rent rises for first time in three years

28 July 2004
In what is undoubtedly good news for buy-to-let landlords, the London lettings market recovered in the second quarter of 2004 to display its first positive annual growth since 2001.

Rentals increased in June, up 0.7 per cent on the previous month, which combined with additional monthly increases in May and April to produce a quarterly rise of 1.1 per cent.

Rental reductions and rising property prices have meant yields have dropped from 7.8 per cent in 1999 to 5.0 per cent this quarter. However, with rental growth outpacing capital price growth, yields have recovered from the beginning of 2004.

If tenant demand continues to recover, yields are likely to increase over the next six months, experts say.

Tim Hyatt, head of lettings at Knight Frank, said: "The new and more positive trend in lettings this year which is reflected in rising applicant levels, viewings, and offers has been mainly driven by a recovery in the corporate sector. This is in marked contrast to the patchy tenant demand in the market at the beginning of last year.

"As the base rate increases, renting becomes more affordable relative to buying, providing further impetus to the lettings market. Reinforcing this trend, there is an increasing perception that short term capital growth prospects are minimal which is encouraging a small, but increasing, proportion of those who have sold to rent, if only a temporary arrangement.

"The sub-market for family homes had seen sales by landlords, which is now leading to a shortage of such stock.

"All our London offices reported higher tenant demand in June than in March. The gap between asking and achieved rents has narrowed recently as landlords' bargaining position continues to strengthen.

"We anticipate 12-month rental growth in Prime London will rise from 0.5 per cent in June, to 2 per cent at the end of 2004. Gross rental yields also look set to improve over the next six months.

"As ever, a shrewd and realistic investor who is prepared to look at the lettings market on a longer term basis will substantially enhance the chances of successfully letting their property."

Liam Bailey, head of residential research for Knight Frank said: "Rental levels in central London fell in real terms in 2002 and 2003 following a downturn in demand for prime stock from corporate tenants and the decline in international placements in the UK.

"With the recovery in the City and growing international economic confidence rentals have begun a slow recovery.

"It will be some time, however, before they recover to levels last seen in 2002."