Normally the London rental market just goes up, but on occasions it does take a fall and the pandemic has resulted in an increase in supply of rental properties and fall in demand, so much so that rents have, typically, fallen.
For once, good news for tenants! Well in the short term. If landlords have sold up due to falling returns and cashing in on their investments, this could lead to lower stock in the future and if and when tenants come back, there's a lack of properties to rent, this is likely to push rents back up again.
Here’s a quick round up of the London rental indices:-
In the capital, the annual rate started to fall in the third quarter of 2020, and has fallen further, with asking rents now 6.4% lower than in Q4 2019, although this is driven by Inner London being down 12.4%, with Outer London flat at 0%. Overall in London, demand so far in January is still up by 8% compared to the same period last year.
Office of National Statistics Index of Private Housing Rental Prices
The data though on rental changes does differ with Rightmove suggesting falls, while the Office of National Statistics suggests that there is still some rental inflation at just under 1% growth year on year, one of the lowest changes since 2009 according to their long term average annual growth rates.
According to Hometrack, rents in London continued to fall in 2020. Rents declined by -2.5% in Q4 2020, taking the annual fall to -8.3%, nearly matching the rental declines seen in the aftermath of the Global Financial Crisis in 2008.
Average rents in London are at levels last seen in 2014, potentially ‘good value’ for renters looking to lock in rents for the next three or more years.
The rental supply outpaces demand in London, as more stock continues to come back to the market amid the changing working, commuting, tourism and business travel trends prompted by the COVID-19 pandemic and subsequent lockdowns.
Households moving out of town, seeking extra space for home working and gardens, helped produce the glut of homes that drove down rents in London in 2020. There was also a slump in demand for the apartments and houses that would normally be let on a short-term basis to overseas executives, tourists and international students. These groups stayed away as a result of travel bans.
Many of these short-let properties came onto the long-term market, exacerbating the excess supply issue. But rents in outer London have been more immune from these challenges. Rents in London’s suburbs rose by 3.8% in November, exceeding pre-pandemic levels. This meant that it was 21% more expensive to rent in inner London than in Outer London in October, compared to 44% more the previous year. We expect the slide in inner London rents to continue in early 2021 before levelling off.
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