Rental prices in prime central London expected to pick up in 2014

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December 12, 2013 2:43 AM EST

Prime central London rents are ending the year in decline but rising demand and economic data point to growth in 2014, the latest rental index shows.

Overall rents fell by 0.3% in November, meaning luxury rents have been falling or flat for 18 months, according to the Prime Central London Rental Index from Knight Frank.

This latest drop pushed the rate of decline in 2013 down to 2%, but the firm expects rental growth to return in 2014.

‘Demand for rented accommodation in London is certainly on the rise. The number of new lettings in the year is up 18% on the previous 12 months, while new viewings and applicants were up by 8% and 9%, respectively,’ said Tom Bill, associate for rental research.

He pointed out that the performance of London’s prime rental market has traditionally been linked to the health of the financial services sector, which is still reeling from mass layoffs at banks and other financial sector firms in 2010 and 2011.

This downwards pressure should ease next year when we expect rents to rise by 2% in prime central London, fuelled by job creation and increased economic optimism in the City. As a result, we expect prime central London rents to outperform other markets over the medium term, rising 18% between 2014 and 2018 versus 16% in the UK and 17% in prime outer London,’ he explained.

‘Meanwhile, the employment outlook in London continues to improve against a background of growth forecasts that many economists are revising upwards, including the Confederation of British Industry earlier this month,’ he added.

He also pointed out that according to the Markit Economics Report on Jobs, the number of staff placed in permanent positions by London based recruitment consultancies rose for a fifth straight month in October.

‘The improving data on the London economy is positive for the rental market where the index is still only 5% below its all time high in September 2011 and a fifth higher than the Post Lehman low in the middle of 2009,’ explained Bill.

‘While bank employment remains under pressure, demand is emerging from alternative sectors including technology, media and telecoms and the legal profession,’ he added.

The index shows that by price band, the £500 to £1,500 per week price bracket saw a 0.2% decline in November compared to the previous month, and a decline of 2.7% over the year to date. In comparison, properties in the £1,500 plus per week bracket fell by 0.5% in November and have fallen by 1.6% in 2013.

Also, while the headline figure indicates falling rents, there were some areas of growth, with Hyde Park rising 0.4% and Marylebone flat in November though up 2.2% in the year to date.

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