The economy is heading for a slowdown if not meltdown. Should we therefore
expect rental values to slide in line with worsening expectations for the
economy as belts and budgets tighten? Certainly not according to the latest
numbers and our own experience in 2010 which show the highest demand in several
years and with rental values up by 10% year-on-year. Other agents have reported
similar data with figures up to 15% and beyond. So what's happening and why the
contrary outturn to what might be expected?
Part of the answer lies in the differences across regions and type of
accommodation on offer. Or type of product if you like. London is unique as an
international city but also given the high rate of domestic migration from the
rest of the UK. And central London is even more unique - not least given finite
amount of space that means new builds are rare and tend often to replace
existing stock rather than add substantially to existing stocks of
have noticed a particular rise in the number of foreign students looking for
high-end accommodation in central London. Often this translates into demand for
flats in modern blocks near the LSE or Kings College or simply in the West End -
Covent Garden or Soho or the buzzing South Bank.
recession has had a major impact on access to credit - not least given the hit
banks have taken and the so-called de-leveraging underway to repair their
balance sheets (reducing their loans in other words). In turn this has had a
major effect on new lending for mortgages with the result many would-be
new-buyers cannot obtain a mortgage. Many of those who can afford to buy - in
cash or with a high-priced loan and 30-40% deposit - are holding out for the
forecasted drop in house prices (pssst..don't hold your breath...the same
demand-supply logic generally applies to sales in London).
Result: many of these folk are
staying put in rented accommodation, meaning less new stock. So higher demand
and lower stock levels...and...QED, rental values up.