Little sign of more balanced conditions in prime London lettings markets until later next year
December 2022 PCL lettings index: 202.7
December 2022 POL lettings index: 206.0
2 minutes to read
As the year ends, the supply of lettings properties in prime London postcodes is less than half the five-year average.
The statistic does not relate to the final month of this year, but December 2021.
There has been a marked imbalance between supply and demand for 18 months, and the narrative of frustrated tenants and fast-rising rents has become familiar in London and other cities around the world including New York.
The supply picture was not dissimilar at the end of this year.
On the demand side of the equation, the number of new prospective tenants was 26.7% above the five-year average in November.
Consequently, average rental values in prime central London (PCL) ended the year 17.8% higher, or 23.2% above their pre-pandemic average.
In prime outer London, the annual rise in December was 15.8%, meaning rents were 21.1% above their level in March 2020.
It means prospective tenants have been operating in a highly competitive market.
There are some signs that supply is improving in higher-value markets as owners tend to be more discretionary with their options, a trend we explored here.
It could even be a sign of things to come for the rest of the market in 2023.
By the time the spring selling season gets underway next year, mortgage rates will be at least 2 percentage points higher than they were this spring as rates normalise in response to double-digit inflation.
It will force a great recalculation on the part of buyers and sellers around what they can afford and what they are prepared to sell for. We expect it will drive prices 10% lower over the next two years, reversing half the growth that took place during the pandemic.
Some owners will accept lower prices while others will decide to let out their property instead, even in the short to medium term.
The recent history of strong double-digit rental value growth will be an added attraction for these so-called ‘accidental landlords’.
Three years after the pandemic first struck, the UK property market may finally begin the process of self-correction next spring, potentially providing some relief to tenants.