Prime London rents fell by 1.5% in the three months to December 2020, leaving them down 3.7% over 2020. That has been driven by a 6.2% annual fall in the rental value of flats, which have been at the sharp end of an increase in stock coming from the short-term lettings market and a reduction in demand from international students, young professionals and sharers.
Across the capital, tenants have continued to emphasise the need for more space and the availability of a private garden. As a result, the rental value of prime houses proved relatively robust (seeing rental falls of just -0.2% over the course of the year). That meant areas with strong family housing stock such as Wimbledon, Wandsworth and Clapham were the top performers of 2020.
Bucking the trend for the rest of the capital, prime South West London saw marginal growth of 0.2% over the fourth quarter and 1.9% across the year as a whole. By contrast, the regions of North and East London and prime central London continued to see the largest rental falls over the past quarter, with values decreasing by -3.1% and -1.9% respectively. In these areas, a surfeit of stock and a lack of international travel – both factors specific to the experience of lockdown – combined to suppress rental values during 2020.
Higher levels of supply and weaker demand continued to exert downwards pressure on rental values across prime London markets in the final months of 2020. Average rents finished 2020 down 11.9% in prime central London and 9.8% in prime outer London.
Source: Knight Frank
Supply has been pushed higher by a glut of short-term rental properties coming onto the long-let market due to the pandemic. Demand from international students and corporate tenants has also been weaker due to Covid-19 and associated international travel restrictions.
The impact of this supply/demand imbalance had started to weaken over the summer but tougher lockdown measures, including a second national lockdown in November, pushed rental values down for a second time in 2020 before the latest national lockdown.
What is also apparent is that central London has been more impacted than outer areas including south-west London, where a stronger sales market means fewer rental properties have come onto the market. For example, the decline was 3.2% in Wimbledon and 4.2% in Hampstead during 2020.
Despite the declines, the number of tenancies started remains well above the five-year average. Many tenants are moving due to a need for more space or to be closer to work, while also taking advantage of lower rents. In Canary Wharf prospective tenants are looking to be able to walk to work, highlighting an interesting consequence of the pandemic in the capital. In Q4 2020, viewing numbers in Canary Wharf increased by 124% compared to the same period in 2019. This compared to a London-wide average rise of 53%.
As the Covid-19 vaccine roll-out programme gathers pace, travel restrictions are relaxed, and London returns to something closer to normality, the supply and demand gap should begin to close this year, which could see the current trend reverse.
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