Savills: Yields finally rising within London’s prime rental market
Savills’ research analyst Jessica Tomlinson also says prime rental growth in London has steadied but gap between tenant and landlord expectations has widened.
Prime London rental values ticked up 0.3% over the first three months of 2024 although the rate of rental growth has slowed for six successive quarter to 3.2% in Q1, the latest index results from Savills reveals.
However rents still remain significantly higher (18%) than before the pandemic. And similarly, values increased by 0.9% on the quarter across prime regions, while annual growth slowed to 4.0%.
AFFORDABILITY PRESSURES
Jessica Tomlinson (main picture), research analyst at Savills, says: “Rental growth picked up slightly on the quarter, however, affordability pressures and increased stock mean rental growth has settled at a much lower level compared with the last three years.
“But rents remain at a record high and the prospect of falling mortgage rates is expected to ease some of the financial burden on landlords.”
Rental growth continues to exceed capital value growth.”
And she adds: “Rental growth continues to exceed capital value growth, meaning that yields have improved across the sector, which will support continued investment.”
In London houses are now outperforming flats while tenants searching for houses typically have slightly more leeway when it comes to budget.
But as the market readjusts to a steadier pace of growth differences in landlord and tenant expectations have also widened.
EXPECTATIONS WIDEN
Tomlinson adds: “A shift in market conditions has caused the gap between landlord and tenant expectations to widen.
“With more choice, tenants are more commonly bidding below asking price on multiple properties. Greater consensus on pricing will be all the more vital in the coming months as the majority of agents across London and the country agree that stock will increase further over the course of the year.”
Outside the capital commuting has given a boost to both regional towns and cities with urban areas continuing to outperform their surrounding areas.
Overall regional towns and cities grew by 8.2% on the year (vs. 2.3% growth in surrounding areas), followed by built-up areas in London’s commuter belt (3.9% vs. 1.5% for more rural commuter belt locations).
