Rental stock rises as owners await sales-market pricing trends
Fears surrounding the global economy have dampened the London rental market, say researchers at property consultancy Knight Frank.
According to the firm’s Winter 2015/16 London Residential Review, uncertainty has centered on events in China, which has caused companies to curb relocation budgets and recruitment plans.
The report also shows that the falling oil price has impacted sentiment among energy companies.
In October, advertising giant WPP, whose performance is a useful barometer of how much companies are either cutting costs or spending, said that firms were feeling risk-averse due to geo-political concerns. Major banks have also continued to reduce headcounts.
Furthermore, stock levels have risen as more owners adopt a wait-and-see approach to pricing trends in the sales market, which has tipped the balance in favour of tenants and put downwards pressure on rents.
Ray Hogan, managing director of real estate company Oryx World Portfolio, agrees that investors are being cautious.
He says, “This year, investors will weigh their options and make decisions based on the long-term appreciation and location of a development in order to achieve the best return on investment.
“Stock levels have risen, however the yearly rise in population will always maintain the rental demand and the need for more housing in the UK,” he adds.
Against this background, rental values in prime central London declined for the second month in a row in November, with a seasonal end-of-year decline in demand also having an impact on values.
While anxiety in financial markets has dampened demand at the ‘senior executive’ level, it remains strong at the ‘super-prime’ level of above £5,000 per week, amid uncertainty surrounding increased stamp duty land tax on second home purchases.
In the short term, the three percentage-point increase could have a dampening effect on rents as landlords buy properties before the deadline, increasing supply. However, it could ultimately lead to fewer rental properties and put upwards pressure on rental values.
Whatever the short-term risks, the positive medium- to long-term outlook for the UK economy will keep upwards pressure on rental values.
Hogan at Oryx World Portfolio adds, “The UK market has proved to withstand economic hardship and continues to attract investors as it offers good liquidity and consistent yearly growth. During 2015 alone and after the general election, it showed stability, and London house prices increased by 17%.”