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26th May 2017 LonRes* Rentals market overview – spring 2017.

LonRes reports the prime lettings market continues to struggle in early 2017 with an imbalance between levels of new supply and demand from prospective tenants.

This is good news for those looking to rent in prime areas of London, offering greater choice and opportunity to negotiate on price. However, for landlords, particularly those keen to avoid lengthy void periods, it means they must be prepared to price competitively to attract tenants.

Following an increase in activity across our three prime areas in the fourth quarter, the number of properties let increased again this year, up 16% on the same period a year ago. All price bands saw an increase in properties let, albeit only a modest rise for homes priced at £1,000 to £2,000 per week. The most significant increases in activity were below £500 per week and over £3,000 per week, both markets recording an annual increase in properties let of 28%.

More on the market

Despite activity increasing, the imbalance between stock reaching the market and new properties let continues to put pressure on achieved rents. Prime central London (PCL) was the only one of our three markets – the others being Prime London (PL) and Prime London-fringe (PLF) – to see a fall in new instructions compared with the first quarter last year, albeit only by a modest 0.5%. PL and PLF both recorded increases in new instructions this year with a 16% rise in the number of properties reaching the market in PL and 18% more in PLF compared with Q1 2016.

Impact on achieved rents

Prospective tenants, noticing a rise in available properties and using Brexit uncertainty as an excuse to negotiate harder, have been paying less, on average, than they were a year ago. This meant PCL recorded its third consecutive quarterly fall in achieved rental values. In the first three months of the year, the LonRes Prime London Lettings Index recorded an 8.3% fall in achieved rental values in PCL. PL and PLF markets also saw falls of 3.8% and 2.8% respectively, compared with Q1 2016.

Some landlords have also been slow to adapt, and to offer more competitive asking rents, meaning discounts on initial asking rents have increased. In Q1 2017 average discounts from initial asking rents rose in all three of our prime areas, from 6.5% a year ago to 8% this year.

Looking ahead our survey suggests agents are bracing themselves for further falls in achieved rents in the coming months, as excess stock is absorbed. Landlords will be hoping that the uncertainty over Brexit and the announcement of a general election in June will support demand for rental properties in central London.

(*LonRes is an exclusive subscriber network strictly limited to known and established property professionals and the definitive source of property data for central London).

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