Low hiring activity and weakening job prospects in the City’s financial and business services sector appear to be at the heart of recent price falls in prime central London’s rental market.
Liam Bailey, Head of Knight Frank Residential Research, examines the figures:
"While demand and supply over the past three months are both up on last year (new tenant registrations are up 15%, viewings are up 23% and property instructions are up 34%), the number of tenancies commenced has fallen by 7%, indicating that potential tenants are looking but are reluctant to commit to making an offer.
"This can be explained, in part at least, by the relatively poor job prospects in the City - confidence was particularly low in late 2011 and this has continued through to 2012. According to the latest figures from Morgan McKinley’s London Employment Monitor, job vacancies across London’s financial services sector fell by 8% from February 2012 to March 2012. Compared to the same month last year, this was a decline of 57%.
"As well as individuals reducing the amount they are willing or able to spend on rent each month, many companies have slashed their corporate relocation budgets. This could explain why the £500 to £1,500 per week band has once again performed better than the £1,500+ sector (prices are up 1.5% and down -1.2% respectively over the past year). Furthermore, tenants are increasingly choosing to renew existing contracts.
"The market could however receive a welcome boost over the coming months as London hits the global spotlight and people from around the world choose to spend their summer here. Some international companies have even been enquiring about the availability of entire apartment blocks to short-let over the summer.
"It is also important to note that rents hit an all-time high in October 2011, having risen by 26.9% since mid-2009. We therefore believe that these recent falls merely represent the market paring back a little, and that rents will have risen over the course of the year, by around 1%."
Tim Hyatt, Head of Knight Frank Residential Lettings and President of ARLA added:
“These figures underline that the lettings market has been struggling since November last year. The Morgan McKinley data is a strong indicator for corporate relocation and is a concern.
“That said, the lettings market is like the FTSE and can change on a daily basis. Despite the 0.1% fall during March, Knight Frank have had a record month in the Lettings team.
"Bar the Olympics and the Olympic factor, I feel that the lettings market will remain strong for the next 12 months with the mid Prime London market performing best with temporary to midterm contracts.”
