For the first time in over a decade, the Prime London Rental Market has experienced double-digit rental growth. Over the first six months of 2022, low supply and high demand has seen rentals in Central London continue to rise by 3.5%, whereas in prime outer London it was 2.5%, creating record overall annual growth of 11.1%.
This, of course, is primarily driven by the return of office workers, businesses and international students as the effects of the pandemic receded and things returned to normal. An improving sales market and regulatory changes have also seen landlords selling up, another factor meaning growth has risen to its highest level since 2010. However, this is predicted to drop down to single digits again later this year, due to the steep rise in rents.
Over the last two quarters, the strongest rental growth has been across North, East and Central London, a bounce-back by some of the areas most profoundly affected by the pandemic. So much so that demand now far outstrips supply, and although supply is beginning to pick up it remains well short of what’s required. A situation expected to last until early next year. In terms of the future performance of the market, the return of international buyers will have a real impact. However, for the time being, this remains a relatively slow process.
In short, the lack of available rental properties combined with high-demand means, as the economy continues to recover, high rents will continue in the short-term. The cost-of-living crisis is also expected to have an effect for at least the remainder of this year. Younger tenants coping with increased energy bills and living costs are, in particular, expected to face more difficulty when renting. This favours landlords, as they, and tenants, have increased expectations and applications for existing properties are well above the 2019 average. A trend expected to continue for the foreseeable future.