The rental market in London’s prime areas is showing signs of recovery after a turbulent period caused by the pandemic. This recovery is marked by changing trends in rental value growth, new listings, and yields, according to the latest data from Knight Frank.
In 2023, the growth of rental values in both Prime Central London (PCL) and Prime Outer London (POL) more than halved compared to previous years. This change indicates a significant slowdown from the rapid increases seen in recent times. Despite this deceleration, the market is yet to return to its long-term norms.
The Pandemic’s Impact
The COVID-19 pandemic had a pronounced effect on the prime London lettings market. At the peak of the pandemic, rental value growth in PCL surged to a staggering 29% in April 2022. This spike was largely due to the influx of short-let rental stock, as Airbnb stays were temporarily banned. However, the market has started to stabilise since then.
Historical Context
To put this in perspective, the only similar fluctuation in recent history was a 19% drop in June 2009, following the global financial crisis. This comparison highlights the significant volatility the market has experienced due to external events.
Listings and Tenant Interest
As of November 2023, new rental listings in prime central and outer London were only 7% below the five-year average. This is a substantial improvement from most of 2022, where the decline was over a third.
The number of new prospective tenants in November 2023 was 5% below the five-year average. This marks a notable decrease from earlier in the year, when the figure was more than a third higher.
Rent Increases and Yields
Average rents in PCL have risen by 32% compared to pre-pandemic levels. In POL, the increase stands at 28%. These figures underline the significant growth in rental costs in these prime areas.
The rise in rents, coupled with a relatively weak sales market, has led to increased yields. In December 2023, the average gross yield in PCL was 4.2%, up from 3.42% before the pandemic. This indicates that investment returns in the rental sector are on the upswing.