PRIME RENTAL GROWTH

Prime rental growth picks up following a slower end to 2022 but is expected to stabilise this year.

with Jessica Tomlinson, Associate in Residential Research, Savills

That being said, prices are slightly up on the quarter in all London regions except prime central London, where growth has dipped marginallysignalling a slowing down of significant rental growth for this market.

When it comes to the type of property and what is performing well, it is the smaller, lower-value properties that have had the strongest start to the year. This part of the market is largely driven by needs-based, domestic tenants, including young professionals and families and so this has placed more pressure and therefore more competition on the limited supply of properties at this level. In fact, rents for one or two bedroom properties are up +1.6% in Q1.

However, prices for those larger homes are also still rising (up +1.4% on the quarter) due to a lack of stock available on the market - particularly in the South West (1.8%), and North and East London (2.8%), where families typically gravitate towards.

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Guide Price

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The lack of stock is something that over half of Savills agents agree (59%) is constraining tenants choices, while a third (34%) say that tenants are expanding their search across multiple London locations.

With some landlords selling up, and tenants locking in for longer to secure existing rental prices, the market continues to suffer from a deficiency in stock. However two in five (43%) of London agents believe that stock will increase in the three months to June as tenant demand waivers, and as more accidental landlords filter through from the sales market.

While the rental market is continuing to defy all expectations, rising inflation and the increased cost of living means that we cannot expect rents to keep pace, particularly now the return to the city movement is largely behind us and the bottom of the prime market is likely to stabilise.

Significant growth over the past three years also limits the capacity for further substantial growth and as a result, sensible pricing will be key to attracting tenants and securing tenancies moving forward.

Stock shortages are also likely to ease gradually as additional supply comes to the market from cash investors looking to take advantage of higher rents as well as accidental landlords, as the sales market cools. We are therefore expect rates of rental growth to return to more historic norms over the longer term.