Central London property rents set for 3% rise, report suggests

Residential rents in central London will grow by 3% this year, slightly ahead of the expected increase in average incomes, according to the latest forecasts from property consultants Cluttons.

‘This year's growth will have a positive impact on yields during a year when capital value growth will be at 2.5%, although rental growth has decreased since last year when we saw a phenomenal, albeit unsustainable, increase of almost 20%, said Andrew Stanford, Head of Residential consultancy division at Cluttons.

‘The continued performance of the residential market has not escaped investors’ attention, particularly in the face of growing inflation concerns. Overseas investors remain a strong driving force for the market, with Central London offering a genuine asset in a secure market and providing diversification outside a domestic economy. With China’s decision to raise interest rates, the UK may offer even greater value for Chinese investors over the coming months,’ he explained.

Overall Cluttons reports a mixed picture in the lettings market. ‘While existing and potential tenants are proving increasingly cautious with their budgets, demand remains positive in most markets. The West End residential villages have seen particularly strong growth in demand and the market balance remains in favour of landlords,’ said Stanford.

We have seen the return of relocation agents to the market, with a growing number of job starters in the banking sector relocating to the UK from the USA, Russia and the Middle East. Relocating tenants are armed with lower budgets than at the peak of the market in 2007,’ he explained.

‘As a result, potential tenants are often flexible in the areas in which they are searching for accommodation. Pimlico, for example, is attracting increasing interest due to relative value,’ he added.

However, given evident concerns for household finances underlined by a small but notable increase in rent arrears in Central London, landlords are generally proving responsive to the market, he believes.

‘Tenants are increasingly seeking to avoid the open market, given their experience of the strength of activity during the latter months of 2010 and are agreeable to small increases in rents at renewal. However, there is considerable resistance amongst tenants for increases in excess of 5% in most locations,’ concluded Stanford.