London Lettings Market - View Into Autumn/Winter 2009

Bankers with cash to spend have returned to the London lettings market this Summer. Smart, contemporary (and more expensive property) like this two bedroom flat to let in Queens Gardens, W2 asking £750 per week are back in demand.

The London lettings market has enjoyed a bounce over the past few months. Stronger rental demand has even put the whip back into the hands of many London landlords. Sales have picked up too. Before estate and lettings agents in London rush down to the Porsche dealership it's worth asking whether it will last and examining what's been going on over the Summer.

The London lettings market, from £250 p/w, for the most modest pied a terres, to around £750 p/w, has been in clover for the past couple of months - but all good things must end. Overseas students have mostly found their homes for the coming academic year (we've seen more of them this year than in the last five years), as have newly graduated recruits (albeit rather fewer of them this year). Together they've made up around 50% of demand in this price bracket since July for property to rent with our west London offices.

That's not to say that demand will drop by half, tenants don't just move on the anniversary of their move-in dates, but we estimate demand to drop by around 30% over the coming months, with a further seasonal dip early in 2010.

The Summer has been kind to landlords with "banker pads" and more substantial properties to rent in London too. Corporate tenants with families are traditionally relocated by multi-national employers during the holidays, July/August being the most active time, followed by Easter. This year was no exception.

As reported earlier in this blog, camel hair shirts were starting to look a little unfashionable in the City. There's been a discernible shift towards tenants looking for flats to rent in prime areas of London with a "wow factor". £400 - £500 per week may have been common-place a few years ago for many one bedroom properties to rent in prime areas of London, but these kinds of budgets had been thin on the ground untill a few months ago - with classic one bedroom, first floor flats to rent in Notting Hill and Kensington conversions being the most in demand. Rents have recovered somewhat as a result.

The big issue today in the London market is whether corporate rental demand will continue to grow, as it has done this Summer, over the coming months. The short answer is no-one knows.

We certainly expect to see more demand for all flats and houses to rent in central London than in the latter part of 2008. There's strong evidence of fresh recruitment in the city (we see the enquiries in our e mail in-boxes throughout the day) among experienced professionals - not just the usual, seasonal graduate intake referred to above.

The sales market has picked up but to nowhere near the levels necessary to create a liquid and accesable market for many would-be homeowners, many now treading water in the lettings market. So unless mortgage lenders start lending more freely and the government (rotfl) reduces Stamp Duty on property sales below £500,000 we're unlikely to see an exodus of tenants from the rental market into home ownership.

Whether or not the economy is in a "double dip" or not we'll all find out over the coming year. Uncertainty is still the only real certainty and renting offers a degree of flexibility that buying does not. Where people are concerned about their financial future renting a property makes perfect sense - even more so when property sales price rises are unlikely to be very substantial, if at all, over the next year or two. It's this sentiment that has been the "backbone" of the London rental market.

Uncertainty is good news for landlords with more affordable property to let. We expect to see continued healthy demand for affordable flats to let as well as properties suitable for professional sharers.

We've seen a recovery in rents in the £250 to circa £1000 per week range over the last few months. The greatest beneficiaries have been landlords at the higher end of this range, helped by higher value sharers (students included) who have taken up much of the slack left by mid value corporate tenants for two and three bedroom properties (a fact most agents have glossed over).

In summary; There's been steady demand at the more affordable end of the market all year. It's likely that some of the gains we've seen, especially for larger properties, will be reversed over the coming weeks, and more certainly over the coming Winter months. If you are a landlord with an offer in hand from reliable tenants now may not be the best time to overplay your hand.