What Rising Rents and Fewer Lettings Mean for Prime Central London Landlords

Fewer tenancies are being agreed than a year ago, yet rents are still moving upwards. For landlords trying to judge where the market is heading, the two trends can seem to pull in opposite directions, but together they say a good deal about how tenants and owners are behaving at the moment.

The latest figures from LonRes, which tracks prime London property, show that lets agreed in August were 27.5% lower than in the same month last year. Over the same period, average rental values rose by 3.8%. Rents have now increased month on month since May and stand more than 41% above their average for 2017 to 2019.

A quieter market, not a weaker one

A fall of more than a quarter in agreed lettings sounds dramatic, but it needs to be read in context. August is rarely the busiest month in central London, and the comparison is with a period when supply was exceptionally tight and competition for good homes was fierce. A slower pace of deals does not, on its own, point to a lack of tenants.

What it does suggest is that tenants are taking more time. With a little more choice available, they are viewing more widely, comparing carefully and negotiating where they feel a property is overpriced. That is a very different environment from the scramble of two or three years ago, when well-presented homes could let within days of coming to market.

More choice for tenants

The supply figures help to explain the change. The number of properties available to rent at the end of August was 6.1% higher than a year earlier, even though new instructions were 3.5% lower. In other words, homes are staying on the market a little longer, so the stock available at any one time has built up.

Part of that additional supply appears to be coming from an interesting source: owners who would ordinarily sell. With the prime sales market still cautious, some are choosing to let their property and earn an income while they wait for conditions to improve. At the same time, some would-be buyers are renting first, using a tenancy as a way to settle into a neighbourhood before committing to a purchase.

Both groups reflect the same mood of patience that has characterised the sales market for some time, and both are now having a direct effect on lettings.

Why rents are still rising

If tenants have more choice, why are rents still climbing? The answer lies in the longer-term balance of the market. For several years, the supply of rental homes in Prime Central London has been held back by higher taxes, rising costs and an increasingly demanding regulatory environment, which have encouraged some landlords to leave the sector. Even with the recent increase in stock, availability remains limited by historic standards.

Demand, meanwhile, remains deep and varied. International professionals, relocating families, students and those choosing to rent rather than buy all continue to compete for the best homes in neighbourhoods such as Chelsea, Kensington, Marylebone and Knightsbridge. Good properties in the right locations are still in short supply, and that continues to support rental values.

It is also notable that houses and flats are now moving broadly in step. During the pandemic, flats fell out of favour as tenants looked for more space, but the gap had closed by the end of 2021. LonRes data also shows that, since August 2019, rents have risen by around 37% for houses and 36% for flats, a sign that demand is spread across the market rather than concentrated in one type of home.

What this means for landlords

For landlords, the message is one of realism rather than concern. Rents are holding up well, but tenants are more selective and less willing to accept a property that falls short of expectations or is launched at an ambitious figure. In a market where homes are taking a little longer to let, the cost of getting the price wrong is a longer void period.

That places greater weight on getting the fundamentals right from the outset. Pricing the property against genuine comparable evidence, presenting it well and making sure it is ready to move into all help a home stand out when tenants have several options to consider. Responding quickly to enquiries and being open to sensible negotiation can make the difference between securing a good tenant and losing them to a competing property.

For owners who are weighing up whether to sell or let, the current climate also offers a genuine alternative. Letting a property can provide a steady income and keep it occupied and cared for while the sales market finds its footing, provided the home is well suited to the rental market and the numbers work.

A market that rewards good preparation

Prime Central London's lettings market is calmer than it was, but it remains fundamentally sound. Rents are rising, demand is broad, and the best homes continue to attract strong interest. The difference now is that tenants have a little more time and a little more choice, and they are using both.

Landlords who approach the market with realistic expectations and well-prepared properties are well placed to benefit. Those who rely on the market to do the work for them may find that, this autumn, it takes rather longer than it used to.