Will London rents go down?
How things change in a month! Competing for a property with 18 other potential tenants; sealed bids; tenant CVs; ‘open houses’ that are only open for 30 minutes; your list of preferred properties shrinking by the hour; and last but not least, high rents. That was the story for renters in October 2022, but this is December 2022 and it’s possible the wind is beginning to change, giving tenants some much needed respite.
Google ‘London rents’ and you’ll still be bombarded with press releases saying how tough the market is for tenants, but talk to the property professionals who see what’s happening in the market on a daily basis and there are those who think we might be reaching a turning point, with London rent prices now going down rather than up.
“With more properties now coming available and affordability pressures making an impact on tenants’ budgets, we are seeing some of the heat come out of the London lettings market”, says Eliza Nissim from Chestertons, one of the top London estate agents.
Other property professionals we should be listening to are London’s relocation agents. “Nobody is more acutely aware of the issues facing prospective tenants than us” says relocation agent Sylvie Froger from Simply London. “We are employed by businesses and individuals to help them find a home when they relocate to London, mostly professionals from abroad. Our work is made so much harder when properties are scarce and the harder it is the less choice our clients have and the more we have to charge, something we are keen to avoid.”
“As a result we’ve spent a lot of time debating the causes of the recent property shortage” says Sylvie. “Is this a short term phenomenon or a longer term trend, do we need to change our business model?”
So what are Sylvie’s thoughts on the subject?
“It’s a complex picture” says Sylvie “It’s about supply and demand and recently we’ve had the perfect storm in terms of a lack of supply and booming demand. Probably the biggest cause of the recent instability in the market has been Covid. Tenants’ living habits changed overnight – some moved home to parents, some moved out of London, others moved for more space and outdoor space. This caused big swings in supply and demand with consequential exaggerated price swings. With Covid behind us the associated dislocations may be starting to normalise.”
“Other causes of the recent supply / demand dislocation are hopefully also showing signs of dissipating” says Sylvie.
According to Henry Pryor of Henry Pryor & Co London and Country Buying Agents a big contributing factor to the reduced supply we’ve seen has been landlords selling up or removing their properties from the rental market. “This has partly been a consequence of the booming sales market following the stamp duty holiday bonanza. This gave many landlords the opportunity to sell up in response to changes in regulation and taxation that have made buy to let less attractive. At the same time other landlords have been lured away by more lucrative short term rental opportunities such as Airbnb. Both of these contributed to a shortage for both private and corporate tenants alike.”
However, with the recent rises in interest rates the sales market has slowed, so would-be sellers, unable to achieve the price they want, are choosing to take advantage of record rents to let their properties instead. And property owners who have been leaving their properties empty taking a ‘wait and see’ approach, faced with higher costs, are being forced to re-let. This increased supply is already putting some pressure on the rental market, with London rent prices going down for tenants.
On the demand side, one of the reasons for the recent boom has been London’s success in attracting the world’s top talent from overseas. “Our client numbers in the past 12 months have broken all records, up 58% on 2021 and 85% on 2019. What we have been seeing is more professionals moving to London from abroad than ever before.” says Sylvie.
Simply London’s anecdotal observations appear to be borne out by official statistics. According to the Home Office website work related visas granted in the year to June 2022 are up 72% from 2019. And it’s not just professionals who are flooding onto the London scene, almost 500,000 student visas were issued in the year to June 2022, a 71% increase on 2019. “Add it all up, and that’s a lot of apartments to find for these people” says Sylvie.
However, a big contributor to the increase in relocations has been growth in the London tech sector and we are now seeing layoffs rather than hiring being widely reported in this space – 122,000 employees across 800 tech companies have been let go this year as companies try to figure out how to be profitable again. Shopify laid off 1,000 employees in July. Twitter let go 3,700. Amazon.com Inc. and Meta plan to lay off 10,000 and 11,000 respectively. We are now also hearing that most of the big investment banks are planning redundancy rounds in the New Year.
The increase in the cost of living is also potentially changing tenants’ behaviours and beginning to reduce demand for rental property. For the past 10 to 20 years there has been a gradual move towards renting solo as increased prosperity has given people more independence. That trend may now be reversing with people looking to share costs. A similar trend can be seen in the house sitting sector. According to Nick Fuad, the number of house sitters on his site House Sitters UK is double what it was before the pandemic. TrustedHousesitters, another housesitting platform, reports a 275% increase in UK growth since 2021. This has a small impact on overall demand, but it supports the observation that renters are trying to save money by reducing the amount of space they occupy and owners are saving money by not leaving property empty.
So what has Sylvie concluded?
Covid, fingers firmly crossed, appears to be behind us so hopefully we’ve seen the end to the instability that that has caused in the rental market. But the future of the rental sector in London is still incredibly uncertain, there are just so many moving parts. Will the migration out of cities continue or reverse? Will the trend towards working from home increase or decrease? Will empty office space be converted to residential increasing supply? What impact will the return of inflation and the turn in the interest rate cycle have on property prices and rents? Will London rent prices continue to go down as they have started to do? As far as relocations and our business go, we believe London will continue to attract ever more people into its unique and much sought-after cultural, education and business ecosystem, but in terms of overall demand for rental property this may be more than offset by businesses and individuals cutting costs.”