By Alessandro Pasetti, 31 July 2018.
Most of the typically bearish headlines about the UK property market highlight the role that London has played since Brexit, with pundits often pointing to the difficult times experienced by the capital – “difficult times” which are here to stay, some argue. But recent research and trends suggest that by no means is London terminally ill.
Moving parts, prime London & changing habits
Take its rental market, for example, where Inveztments is looking at alternative ways to help landlords better monetise their assets at a time when for traditional property owners – those did the bare minimum except cashing in the monthly rent – the real estate heydays are a distant memory.
There are many moving parts here, including property prices trends, yet the rental market is often a good gauge of health in the private sector, and deserves attention. Given house prices dynamics in certain areas, London has been a national drag for some quarters now – although some sort of slowdown was surely inevitable after years of stellar growth, and latest signs this week were encouraging, particularly when other factors, apart from house prices, are considered.
At the end of the first quarter, market specialist Savills noted that price falls across the “prime London rental market have continued to ease as a shortage of stock means supply and demand levels are becoming more aligned”, although the increasingly picky nature of tenants “has prevented any significant upward pressure on rents”.
“Picky nature” means changing habits even for wealthy tenants who have become more selective than in the recent past.
Prime North West London, in particular, has recorded a strong demand for family houses but lower levels of “appropriate and available” supply, which has contributed to drive up prices. Stock of the best quality commands pricing power, with tenants prepared to pay a significant premium (up to a whopping 30%, according to Savills) for prime properties which are in immaculate condition compared with those considered moderate or poor.
Either way, value hunters are wary of paying up for the properties they are looking to rent because most tenants are looking for bargains: in fact, research shows that most are willing to relocate within prime London, which badly reflects on some areas (Kensington, Chelsea, Westminster) more than others, impacting landlords’ total returns.
Earlier this year, another market specialist, Knight Frank, analysed the performance of single-unit rental properties in the prime central London market (worth between £250 and £5,000-plus per week), and its findings were not surprising. In a nutshell, the annual rental value change was a modest –0.8% in April…
(Source: Knight Frank)
…standing at -0.1% in May, with better numbers for prime outer London, too…
(Source: Knight Frank)
…and look at the latest stats for June, which were even better and showed growth again in annual rental values.
(Source: Knight Frank)
On the one hand, rental growth could continue to outpace expectations. On the other, landlords ought to remember that income growth could be capped by the number of newbuild completions, which are expected to surge next year.
Trends have not materially changed in recent weeks, so not only is London’s rental market possibly plateauing, but it’s getting stronger by the day, forcing landlords to find creative ways to boost returns – where applicable and feasible – such as adding rooms to their properties that can be rent out, while outsourcing the initial investment in order to extract value from their assets.
Break-down by type of available space on the market
Data on private rental market from the Valuation Office Agency shows that between July 2017 and June 2018 the “count of rents” (the number of rental agreements agreed on a monthly basis) for a single room in London has found a floor since the Brexit referendum at 1,220.
The average rental income for a single room stands at £628 per month, obviously lagging that of studio flats (£988) and all other property types, with anecdotal evidence showing that while count of rents have fallen, landlords have gained in terms of pricing power in this category. The same applies to other categories in the past twelve months.
All the latest stats available can be found in the table below.
One-, two- and three-bedroom flats typically account for 80% of total rents, and have been particularly resilient in terms of growth in the upper quartile, which validates the findings of market research specialists.
These bedroom categories are where the team of Inveztments plans to help landlords explore ways to boost their income streams and make a difference in the months to come, and we look forward to sharing some really exciting news with you later this year.
Are you a landlord and do you want to learn more about how to maximise your property-related returns in London? Do you want to talk to us and find out more about other projects in our pipeline?
Do not waste time and contact the INVEZ team today!
(This post was written by Alessandro Pasetti. Ale is the founder of Hedging Beta Ltd. He writes about investment strategy and assets valuation for European clients as well as Seeking Alpha, The Loadstar, Transport Intelligence and others. Based in London, he previously worked for about five years at Dow Jones/The Wall Street Journal, producing analysis for the IB community. Prior to that, he contributed to the launch of London-based Loan Radar, where he worked for three years. He had stints in equity research at Bear Stearns in London, HVB in Munich, and Unicredit in Milan.
It was edited by Gavin van Marle, managing editor of London-based The Loadstar. Gavin is also the author of the book Around the World in Freighty Ways: Adventures in Globalisation. He has won numerous awards, including the Seahorse Journalist of the Year 2011 and 2009, and Supply Chain Journalist of the Year 2010 and 2014.)