In central London, rising rents offset a decline in residential prices after 18 months of growth, as excess supply outstripped demand.y. The hot rental market could cool with an expected influx of properties, but for now units are being snatched up at a fast pace with little dispute over asking prices. See the following article from Property Wire for more on this.
Residential property prices in central London have fallen for the first time in 18 months but the city’s rental market is buoyant with strong demand leading to rent increases.
Property prices fell 0.2% in the third quarter while rents increased 4.3%, the latest report from international property consultancy and chartered surveying firm Cluttons shows.
The fall in prices follows a slowing in price increases which only increased by 0.9% in the second quarter of the year. But on an annual basis prices are still up by 5.9% and are now 11.1% below their peak of September 2007, the report points out.
It says the decline is due to weaker demand for property at a time when there is more supply in the market.
‘Whilst potential applicants continued to register during the third quarter, in reality demand was low, exacerbated by the summer holiday season. Only properties in prime locations or those with a unique selling angle were receiving real interest from potential purchasers,’ said Andrew Stanford, head of Cluttons’ Residential professional division.
Demand has focused on middle range property up to the £2.5 million mark while there has been little activity or interest in property above £3 million or for secondary stock which, as a consequence, is likely to remain on agents’ books until a price adjustment is made.
The report also indicates that prime located properties are holding their value to a certain extent, although even here, potential buyers have become more discerning. Overseas purchasers are still interested when a top prime property enters the market, but most transactions depend on demand from domestic purchasers.
The weakness in price levels is expected to persist through 2011 and the report points out that expectations that interest rates will begin to edge upward next year will have a negative affect on this already wavering market.
But in stark contrast to the sales market, the rental market has been buoyant. Not only are rents up but void periods are down to a minimum and the weakness in the sales market is already bringing stock back to rent. However, the rate of rental increases is expected to moderate as supply grows over the coming year.
The 4.3% increase in rents in the third quarter of 2010 comes on the back of a 3.2% growth in the previous quarter. This was the largest quarterly rise in rents since the first quarter of 2007. Rents have risen by 10.7% over the last year and are now 5.4% below their peak in the first quarter of 2008.
Of the Central London submarkets, Central West saw the biggest uplift in rents at 7.3% over the quarter followed by Central South West at 5.3%.
Demand for rental properties increased significantly over the quarter, particularly from students and job starters and continued to outstrip supply. Requirement levels have been high for all types of property, with interest across the price spectrum in a competitive market. The appearance of multiple offers on a property was not an uncommon feature during the summer months, the report shows.
It also says that demand from multinationals, business services and the banking sector has improved. Property in the £800 per week to £1,800 per week price bracket is the most sought after. Properties that do come on to the market have been quickly let, sometimes within 24 hours, with asking prices usually achieved with little negotiation. Rental renewals have also gone through smoothly, with a 5% increase on current rent widely achievable.
Whilst demand levels should remain firm, the supply of property is likely to increase during the autumn, with more valuation activity and more properties coming on to the market. Consequently, rental rises are expected to moderate over the coming months, the report adds.
This article has been republished from Property Wire. You can also view this article at Property Wire, an international real estate news site.