The lettings market, which has been suffering from a glut of supply and weaker demand, is starting to recover as increased sales activity and a return of corporate tenants soaks up the surplus rental stock.
Figures released this week by the Association of Residential Letting Agents (Arla) showed that one third of Arla members felt the supply and demand of rental property was now in balance, up from 19 per cent last quarter.
Arla said more people were committing to tenancies, while fewer new properties were becoming available.
Meanwhile, FindaProperty.com, the property search site, said there had been a “clear-out” of stock in September. The number of properties available to let fell by more than 6 per cent last month – the largest monthly decline since the beginning of last year. Properties that came on to the market were also letting faster – they were on FindaProperty.com for an average of 59 days last month compared with 66 days in August.
Michael O’Flynn, director of FindaProperty.com, said demand was strongest at the lower end of the market, as students embarking on new courses and recent graduates took accommodation.
Similar trends have been seen at the top end of the lettings market. Savills, the estate agent, has reported a rebalancing of supply and demand as increased sales activity has eroded surplus rental stock.
“This has coincided with signs of renewed interest from corporate tenants and relocation agents,” said Lucian Cook, director of Savills residential research.
Increased competition for properties has begun to push up rents. Savills said rents in the prime London market recorded their first quarterly increase since mid-2008 in the three months to September 30. Rental values in prime central London rose by 1 per cent in the third quarter but are still almost 12 per cent down on a year ago.
Price rises have been most evident in flats. Cook said rental values for flats were now just 8.6 per cent below their peak value, while rents on houses were still 13 per cent lower.
Rents have fallen sharply in the past 18 months as property owners have been unable to sell their homes and so have been forced to let them out instead. Also, as the rate of employment has fallen, demand for one and two-bedroom flats, which are traditionally popular corporate lets, has dropped away. Agents said that, in the worst cases, rents across some prime markets had fallen by as much as 20-30 per cent from their peak 2007 prices.
While there is some evidence that rents are now creeping up in some areas, agents are not expecting a quick return to strong growth.
Arla said that average rents remained stable last month, in spite of the increased demand.
Tim Hyatt, head of lettings at Knight Frank, the agent, said rents were rising slowly but the market remained “haphazard”.
“We are achieving rents just shy of the asking price – but this is still around 10 per cent lower than a year ago,” he said.
He also pointed out that yields had been squeezed in recent months as property values have recovered. Average rental yields are now just below 4 per cent, according to Knight Frank. The agent’s latest sales index showed that house prices in some prime areas have increased by as much as 9 per cent since March.
Average prices in prime central London rose 1.3 per cent in September, although prices were still 18 per cent below their March 2008 peak.
Also, tenants are increasingly missing payments. Research from LSL Property Services, which owns the Your Move and Reeds Rains lettings agents, said that by the end of August, 17.4 per cent of tenants had failed to pay their rent on time, up from 15.3 per cent at the end of July.
Its research found that tenants paying higher rents were more frequently missing payments.
