Rents for prime London properties jumped 10 per cent over the past year to reach new highs, driven by demand from City workers and wealthy international individuals.
Prices for rental property in the capital now stand an average of 4 per cent higher than at their 2007 peak, and there is no evidence of a slowdown to come, according to estate agent Savills.
“A boost in demand from international and corporate tenants is driving values in central locations, but rental growth is underpinned by strong and growing demand from would-be buyers unable to access home ownership,” said Yolanda Barnes, head of Savills residential research.
“Constrained stock levels are creating competition and an upward pressure on rents.”
Some of the biggest price rises over the past year were seen in St John’s Wood and Regents Park, where international tenants dominate, and in locations east of the City such as Wapping and Canary Wharf, where a revival in financial sector employment and sentiment are boosting occupancy rates.
In St John’s Wood and Regents Park rents are continuing to rise sharply, up 4.9 per cent in the second quarter and now 20.6 per cent over peak. In the east of the City rents rose by 11.6 per cent in the past year, and by 2.0 per cent in the past three months. However, these locations fell most sharply in the downturn and rents therefore remain 7.5 per cent from peak.
Islington and Hampstead, which also attract City-based tenants, have risen by 11.3 per cent over the past 12 months, though their varied client base and more limited stock levels mean that rents are now 15.2 per cent above peak.
“After several years of steady, if unexciting, growth the prime central London market has experienced its most dramatic quarterly improvement for some years,” said Jane Ingram, head of lettings at Savills.
Prices have been squeezed by tenants staying put because either they cannot, or will not buy, limited supply and steady corporate demand. Ms Ingram said. “Unless stock comes into the letting market from the sales market, these factors look likely to dominate for the remainder of the year.”
At the lower end of the prime London market, where weekly rents average £1,250, rents rose 4 per cent in the quarter and are now 6.4 per cent above their peak. The top end recorded slightly lower annual growth than the average, rising by 7.5 per cent over the past 12 months to leave rents 1 per cent below their former peak.
Flats have marginally outperformed houses across all prime London, and rents are now 4.9 per cent over peak, compared with 2.1 per cent for houses.