Prime Central London Rents See Sharp Falls

Prime Central London have seen rental falls of 9.6 percent during the last three months of 2008 according to Knight Frank’s rental index.

Rents have been seen to fall by a total of 12 percent,over three consecutive quarters, taking rents back to the level last seen in March 2007.

Head of residential research at Knight Frank, said: “Prime residential rents in central London have fallen dramatically over the past three months. To put the figures in perspective, the drop of 2.1 percent recorded in September 2003 was the previous largest biggest decline on record in prime central London.

“While there has been an increased demand for rental property, the result of many people choosing to delay house purchase, 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.

“Tightening budgets and reduced corporate expenditure also means that demand is strongest for properties at lower price points, which are overwhelmingly flats. Over the past quarter in prime central London, rents for properties priced at under £500 per week have fallen by only 2.4 percent, while those priced at over £1,500 per week have seen a of fall by 15 percent. Rents for houses, meanwhile, have dropped by 17 percent, compared to just 8 percent for flats.

“As a result, the owners of higher value properties, which are disproportionately houses, face either long void periods or a dramatic adjustment in their expectations of what rents may be achievable. However, there is some good news for landlords. Rents may be falling but base rates are at unprecedented levels, and those with tracker mortgages may find that their costs drop and margins increase.

“Prime central London yields remain at just over 4 percent, however far higher yields, in excess of 7 percent, are achievable on stressed sales and repossessions. The coming 12 months will offer an opportunity for the cash-rich acquisitive investor who can find a competitively priced property, particularly as borrowing and interest costs are dropping as base rates fall.

“It is also worth pointing out that rents saw a substantial amount of growth in 2007 and were still rising at the beginning of 2008. These dramatic falls have not yet completely eroded these gains. In prime central London rents are only 10.8 percent lower than a year ago and have only returned to early 2007 levels. In prime outer London, rents are 12.2 percent lower and have returned to late 2006 levels.”

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