Surging demand for rental properties in prime London continues to push prices up, as tenants battle for accommodation in the capital. Rents increased by 3.4% in Q3 2022, only slightly below the 3.7% increase seen in the previous quarter. This brought annual growth in the third quarter to a high of 14%, up from 11.1% at the beginning of the year.
Remarkably, rental growth in the third quarter of last year was the highest on record. The first index by Savills was released in 1979, and annual rental growth has never reached as high as 14 per cent.
Young people are moving back to the city in growing numbers, having been deferring their studies or working from home in more rural locations throughout the pandemic.
First-time homebuyers are holding off purchasing property whilst mortgage rates are high. This is causing the population of renters to swell, and driving prime London rental prices up.
Meanwhile, stock shortages are persisting, making it harder than ever for prospective tenants to secure a rental property in the capital.
Students and corporates drive demand
North West, North, and East London all saw an influx of affluent students looking for prime rental accommodation in the last year. Almost half (48%) of Savills London agents named an influx of students as the top reason for the demand surge.
A third (31%) of agents disagreed, suggesting that young professionals were driving the demand for rental properties. As businesses encourage a return to the office, and working from home ceases to be the norm, many professionals are returning to the capital to be closer to work or employment opportunities. This is particularly the case with the young demographic, who are less likely to be tied down by family or a mortgage and have more flexibility to up and move.
Two-thirds of Savills agents also reported an increase in international demand. A global city, London has long been renowned for its outstanding universities and opportunities in work and business.
Despite a fall in students from the EU, non-EU applicants have risen dramatically over the past few years, and this is driving international numbers up. The number of international students studying in London is now 10% higher than before the pandemic, and these tenants are willing to pay 20% more for accommodation, according to JLL.
A return to the capital
The average rent of a home in the city rose 1.4% in the third quarter of 2022, which is substantially higher than the 0.4% increase seen across more rural locations. In towns, rent prices grew by 0.8% whilst village properties saw a 0.9% increase in value.
Annual growth in the city was recorded at 5.8%, as opposed to 5.0% in rural locations. The rental value of village properties rose by 4.9% over the year and, at the moment, towns are actually leading the way with an annual growth of 8.5 per cent.
Flats versus houses
Data also shows that the gap between flats and houses is narrowing. Flat rental values grew 3.7% in prime London in Q3 2022 and 15.5% annually. Rents for houses increased by a lesser 2.7% and 12% annually.
Given the influx of students and young professionals into the city, this comes as no surprise. The younger demographic is more likely to flat-share, and in light of the cost-of-living crisis, more people than ever are searching for smaller, shared and more affordable homes. According to Savills, 43% of London agents reported that budgets across the city’s commuter belt began to decrease in Q3 (up from 23% in Q2). We are likely to see this effect spread across the capital as inflated consumer prices persist.
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