Lettings supply rises as sales market stutters
July 2023 PCL lettings index: 215.3
July 2023 POL lettings index: 216.0
2 minutes to read
The long-awaited supply increase in the prime London lettings market is underway.
The reason is the current uncertainty facing the sales market as rising mortgage rates put downwards pressure on prices and sales volumes.
Rates have been rising as the Bank of England attempts to tame high inflation.
The number of lettings instructions in July in London was 18% higher than the same month last year and the highest for any single month since October 2020, Knight Frank data shows.
“We are starting to see a noticeable shift in stock from the sales markets to the lettings market as owners are not able to sell for the asking price,” said David Mumby, head of prime central London lettings at Knight Frank.
“A strong sales market in Notting Hill and Kensington meant they were the last two areas holding out, but we are now seeing it happening there too.”
“Some of the stock that has gone across from lettings has sold, but we are unquestionably seeing more stock come back to lettings,” added Jon Reynolds, head of north and east London lettings at Knight Frank.
Rental value growth has continued to calm as supply improves but it’s still strong by historical standards.
Average rents grew by 13.7% in the year to July in prime central London, which is down from almost 30% at the height of the stock shortage in April last year. However, to put that in perspective, average rents grew by 15.6% in the ten years before the pandemic.
In prime outer London, rents grew 12% in the year to July, which exceeded the growth of 11% seen over the decade before the pandemic.
Although there will be more downwards pressure on rents as supply rises, there is unlikely to be a notable impact in the short-term as demand remains strong, particularly during the busy summer period, says David.
“Demand is so strong right now that higher supply hasn’t notably affected rents yet. I would expect it to feed through to a greater extent over the next six months.”
Indeed, rents grew by 1% in prime central London in the month to July, which was the highest figure since January. Monthly growth of 0.9% in prime outer London was also the strongest result over the same time period.
Stock is rising but things won’t get meaningfully easier for tenants quite yet.
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