London Prime Residential Lettings Report Spring 2015

London Prime Residential Lettings Report
Spring 2015
1
London Prime Residential Lettings Report
Spring 2015
Key trends
–– Improvement in key indicators in Q1 but tenants remained cautious
–– Prime rents rose by 1.3% during first quarter
–– Prime yields edged upwards again to 3.14% at quarter end
–– Investors breathe a sigh of relief following Election result
–– Forecast prime London rental growth of 2.5% in 2015
Supply & Demand
The signs of recovery apparent in Q4 last year
gained traction in the first quarter of 2015 with
all of the key indicators showing healthy uplift.
On the demand side, agreed lettings rose by
30% compared to the previous quarter and over
one third more new applicants were registered.
The data also point to increased interest from
investors, with instructions rising by 25%.
Nonetheless, the market remained testing for
landlords. In spite of the more buoyant activity,
new supply outpaced tenant demand and
available stock increased by one fifth over the
quarter.
Figure 1: Key market indicators: Q1 2015 v. Q4 2014
15%
10%
19.8%
20%
24.8%
25%
30.3%
35.2%
30%
37.6%
35%
39.0%
40%
5%
0%
Viewings
Applicants
(properties viewed) registered
Valuations
Agreed lettings Instructions
Stock
(end-quarter)
Source: Chestertons Research
2
There was a notable increase in valuations
requested by non-resident landlords for Capital
Gains Tax purposes in the latter part of the
quarter. Whether this is the pre-cursor to a
flurry of sales remains to be seen. Only a small
number of non-residents have so far indicated
they would like to dispose of their properties
although some may be waiting for existing
tenancies to expire or to reach the two month
notice point.
Figure 2: Key market indicators: Q1 2015 v. Q1 2014
0.3%
4%
2.9%
8%
9.9%
12%
-8%
-12%
New applicants
Stock
Agreed lettings
registered
(end-quarter)
Valuations
-10.3%
-4%
-2.5%
-1.2%
0%
Instructions
Viewings
(properites viewed)
Source: Chestertons Research
The increase in stock levels meant that there
was more competition for applicants and the
emphasis for landlords switched to increasing
the quality of their properties to attract and
retain tenants. New tenants and those looking
to move remained cost conscious and were
generally reluctant to commit to properties
which they perceived as not offering value for
money. For their part, landlords remained keen
to retain good tenants, which was reflected
in renewals data: the percentage of contracts
which were renewed rose from 56.4% in Q4
to 66.3% in Q1, while the total number of
renewals was 22.8% higher and the number of
terminations was 5% lower than in the previous
quarter.
A number of factors impacted positively
on tenant demand. The London economy
remained buoyant and the employment market
picked up during the quarter. The Morgan
McKinley Employment Monitor revealed that
the number of financial services jobs new to the
market in Q1 rose by 34.6% compared to Q4
last year. London is the fastest growing regional
economy and is being driven by a fast-growing
IT & communications sector and professional
& business services, with a depth of expertise
that few other cities around the world can come
close to rivalling. Unemployment in the capital
remains at its lowest rate (6.2%) for many years
and the GLA is projecting overall jobs growth of
0.7% per annum over the next five years.
3
Figure 3: Financial services jobs new to the market
10000
9,315
9,261
9,255
9,135
8,955
8,490
8,442
8000
7,995
7,623
7,905
7,410
7,410
7,695
7,350
6000
4,620
Ja
n14
Fe
b15
M
ar
-1
4
Ap
r-1
4
M
ay
-1
4
Ju
n14
Ju
l-1
4
Au
g14
Se
p14
Oc
t-1
4
N
ov
-1
4
De
c-1
4
Ja
n15
Fe
b15
M
ar
-1
5
4000
Source: Morgan McKinley
Rental growth
Despite the increase in available stock, rental
growth was only slightly lower than in the
previous quarter. The Chestertons Prime London
Residential Rental Index recorded growth
of 1.3% in Q1. Rental increases on renewed
tenancies were similarly slightly lower than the
Q4 figure at 1.7% over the quarter.
At submarket level, the highest quarterly rental
growth was recorded in East Sheen (+5.7%) and
in Chelsea (+3.9%). 20 out of the 23 submarkets
which are covered in the index reported rental
growth and only three submarkets experienced
a fall in rental values with Camden (-4.9%)
seeing the steepest decline.
The average weekly rent in the Chestertons Prime
Rental Index moved up to £934 at the end of
March. St John’s Wood (£1,895/week) remained
the most expensive submarket, while the gap
between second placed Knightsbridge/Belgravia
(£1,828/week) narrowed during the quarter.
Figure 4: Prime London quarterly rental growth
0.6%
1.6%
Q2
2014
Q3
2014
Q4
2014
1.3%
0.5%
0.4%
0.2%
1%
0.8%
2%
-2%
Q2
2012
Q3
2012
Q4
2012
Q1
2013
Q2
2013
Q3
2013
-1.3%
-0.8%
-0.8%
-0.9%
-1%
-1.7%
0%
Q4
2013
Q1
2014
Q1
2015
Source: Chestertons Research
4
Residential Investment Market
London’s population is rising at its fastest ever
rate and the private rented sector (PRS) is also
expanding - 29.6% of London households
now rent. This is triggering growing investor
activity in the sector, both from buy-to-let (BTL)
landlords and institutional investors.
Gross BTL mortgage lending (for house
purchase and remortgaging) in the first two
months of 2015 was 11.4% higher than in the
corresponding period last year. The favourable
interest rate environment and a more expansive
product offer from lenders is making property
investment even more attractive for BTL
landlords. According to a study by Moneyfacts,
there were 476 BTL mortgage products on offer
two years which has now risen to 745. Two years
ago, there were just five two-year fixed rate BTL
deals priced below 3%, but today this figure has
jumped to 83. With regard to five-year BTL deals
priced below 5%, two years ago there were 37
such mortgages available, but currently there
are 143 on the market.
The institutions continue to show interest in
the sector, albeit it remains a trickle rather
than a flood. Among recent deals, M&G’s UK
Residential Property Fund is understood to have
agreed to its third PRS deal, a £50m (€70m)
investment in west London. The 205 units,
part of Inland Homes’ Drayton Garden Village
scheme, take the open-ended fund’s overall PRS
portfolio to 850 units.
Mobile phones billionaire John Caudwell has
unveiled grandiose plans for what has been
described as Britain’s first £2 billion apartment
block in the heart of Mayfair. The founder of
the Phones4U high street chain wants to build
30 “super prime” flats and townhouses in a
bid to eclipse One Hyde Park in Knightsbridge
as London’s most exclusive new address. A
planning application for the 200,000 sq ft
“neo-classical” scheme on the site of a Sixties
multi-storey car park has been lodged with
Westminster Council.
Growing calls for tighter regulatory control of the PRS
The acceleration in the growth of the private
rented sector since the global recession has led
to increasing calls for tighter regulatory control.
Some of the measures are logical and will
benefit the sector (e.g. restricting the power of
local authorities to selectively license landlords)
while others (e.g. proposals to make it easier for
tenants to sublet) may serve to deter investors.
The Election result has, for the time being at
least, ruled out the prospect of rent control –
much to the relief of investors.
However, more action is needed to increase
the stock of PRS accommodation. Rents are
increasing because demand is rising faster than
Yields nudged upwards again in Q1
Although capital values rose marginally, rental
value growth was stronger resulting in a further
slight softening of yields during the first quarter
of 2015. The Chestertons Prime London
supply. The previous Government looked at ways
to encourage greater institutional investment
in the sector, but did little by way of following
up recommendations made. Their Build-toRent fund was a step in the right direction as is
the commitment from their new Government
to deliver 10,000 new homes to rent at below
market rent – but this is nowhere near enough
to resolve the problem. What the government
should be doing is encouraging more investors,
especially institutions, to enter the sector and
provide more stock and thus make rents more
affordable via increased market competition.
Residential Yield Monitor recorded average gross
yields of 3.14% at the end of March, while in
prime central London yields also rose slightly to
2.97% from 2.95% at the end of Q4.
5
Figure 5: Prime gross residential yields as at end-March 2015
2.4%
2.4%
2.9%
2
3.0%
3.1%
3.1%
3.1%
3
3.9%
4
4.2%
5
1
M
ay
fa
ir
PC
La
ve
ra
ge
Ke
Kn
ns
ig
in
ht
gt
sb
on
rid
ge
&
Be
lg
ra
vi
a
Hy
de
Pa
rk
Pr
im
Hi
eL
ll
on
do
n
Ch
av
el
er
se
ag
a
e
&
S
Ke
ns
in
gt
on
N
ot
tin
g
St
Jo
hn
's
W
oo
d
0
Source: Chestertons Research
Outlook
The Election result was very important for the
residential investment market. Landlords were
facing the prospect of the double whammy of
Mansion Tax and rent controls, and this on top
of the Capital Gains Tax already introduced
in April this year on the disposal of residential
property by non-resident owners. With the
removal of these potential hand grenades,
investors can now focus on which assets to buy
rather than deciding whether or not to exit the
sector altogether.
Of course, there remains the possibility of other
events which could upset the market. A Greek
exit from the Eurozone appears more likely as
time passes while the possible exit of the UK
6
from the EU following a promised referendum
on EU membership could create financial
shockwaves which would be damaging in
particular for the London economy with its large
financial services sector.
However, the UK would likely benefit from
further instability within the Eurozone, whilst
it is far from certain that a referendum on
EU membership would result in Brexit. In
the meantime, the shorter term economic
outlook remains positive: the HM Treasury
panel of independent forecasters has raised its
projection for GDP growth in 2015 to 2.7% from
2.6% in the previous month, although growth is
expected to moderate to 2.3% in 2016.
The Conservative’s austerity programme will
continue which will slow economic growth
below potential and inflation remains low,
which should sustain the low interest rate
environment. Investors should continue to
benefit from the plethora of cheap buy-to-let
mortgage deals for some time to come.
Tenant demand going forward will continue
to rise. The proportion of privately rented
households in London has already risen by
10.2 percentage points over the past decade
and ongoing affordability issues in the owner-
occupier market in London mean that this ratio
is likely to increase over the next decade.
On balance, we expect rental growth in the
wider London market will slow to around 6.0%
this year. Within the prime sector we forecast
rental growth will reach 2.5% in 2015 and
accelerate slightly to 3% the following year. As
before, the lower value locations offering better
value for money and good access to the main
employment districts are most likely to see the
strongest rental growth.
Figure 6: London private residential rental value forecast
2015
2016
2017
2018
2019
2015–19 total
compound
growth
London
6.0%
5.0%
5.0%
6.0%
6.0%
31.3%
Prime London
2.5%
3.0%
3.0%
3.5%
4.0%
17.1%
Source: Chestertons Research
Investors should continue to benefit
from the plethora of cheap buy-to-let
mortgage deals for some time to come.
7
8
£732
1.4%
£765
5.7%
Kew
£884
1.4%
£698
1.0%
Barnes
Chiswick
East Sheen
£766
2.1%
Putney
£765
2.7%
Fulham
£662
1.6%
Battersea
£1,828
1.0%
£1,746
1.0%
Mayfair
£569
-4.9%
£661
-0.2%
Source: Chestertons Research
£650
1.7%
Chelsea & £1,239
South Kensington 3.9%
£1,3
Kensington 1.4 27
%
Hyde £1,013
Park -0.3%
£1,4
Little Venice 2.1 54
%
£1,895
0.2%
£94
Hampstead 1.4%6
St John’s Wood
£8
Notting Hill 1.865
%
The Chestertons Prime London Residential Lettings Index tracks quarterly
changes in rental values in 23 locations across London. It is a fixed-base
index and is based on the quarterly repeat valuation of a standard basket of
properties (selected so as to be representative of the typical cross-section of
prime stock within each location) to remove inconsistencies which can arise
from using a transaction based approach where the number and type of
properties may vary significantly between reporting periods. As the basket does
not change over time, we have not applied any adjustment for seasonality or
property mix. The geographical coverage of our Index is as follows:
Barnes, Battersea, Camden, Canary Wharf, Chelsea & South Kensington,
Chiswick, Covent Garden, East Sheen, Fulham, Hampstead, Hyde Park, Islington,
Kensington, Kentish Town, Kew, Knightsbridge & Belgravia, Little Venice,
Mayfair, Notting Hill, Pimlico, Putney, St. John’s Wood and Tower Bridge.
Figure 7: Average prime residential weekly rental values & 3-month growth as at end-Mar 2015
Islington
To Canary Wharf
Canary Wharf £597
& Docklands 1.0%
Westminster
& Pimlico
£
Tower 1475
Bridge .2%
Covent Garden
Knightsbridge
& Belgravia
£707
0.6%
Camden
£803
0.6%
Kentish Town
Contact
Chestertons is the London and international residential property specialist that knows its
business and markets like no one else and every year helps thousands of people buy, sell, let, rent
and manage their homes and investments. With 30 offices across the capital, Chestertons has one
of the largest networks in London, as well as a strong international presence around the globe.
Nicholas Barnes
Head of Research
T: 020 3040 8406
E: [email protected]
Richard Davies
Head of Residential
T: 020 3040 8244
E: [email protected]
London Lettings Offices:
BARNES – T: 020 8748 7733
KENSINGTON – T: 020 7937 7260
E: [email protected]
E: [email protected]
BATTERSEA – T: 020 7298 5630
KENSINGTON CHURCH STREET – T: 020 3040 8446
E: [email protected]
E: [email protected]
BATTERSEA PARK – T: 020 3040 8700
KENTISH TOWN – T: 020 7267 1010
E: [email protected]
E: [email protected]
CAMDEN – T: 020 7267 3574
KEW – T: 020 8104 0340
E: [email protected]
E: [email protected]
CANARY WHARF – T: 020 7510 8310
KNIGHTSBRIDGE – T: 020 7235 3530
E: [email protected]
E: [email protected]
CHELSEA – T: 020 7594 4750
LITTLE VENICE – T: 020 7266 2369
E: [email protected]
E: [email protected]
CHISWICK – T: 020 8747 3133
MAYFAIR – T: 020 7288 8301
E: [email protected]
E: [email protected]
COVENT GARDEN – T: 020 3040 8400
NOTTING HILL – T: 020 3040 8588
E: lettings.covent [email protected]
E: [email protected]
EAST SHEEN – T: 020 8104 0580
NORTH BARNES – T: 020 8748 7733
E: [email protected]
E: [email protected]
FULHAM, FULHAM ROAD – T: 020 7384 9899
PUTNEY – T: 020 8704 1000
E: [email protected]
E: [email protected]
FULHAM, NEW KINGS ROAD – T: 020 7348 7777
ST JOHN’S WOOD – T: 020 3040 8622
E: [email protected]
E: [email protected]
HAMPSTEAD – T: 020 7794 1125
TOWER BRIDGE – T: 020 7357 6911
E: [email protected]
E: [email protected]
HYDE PARK – T: 020 7298 5950
WESTMINSTER & PIMLICO – T: 020 3040 8220
E: [email protected]
E: [email protected]
ISLINGTON – T: 020 7226 4221
E: [email protected]
The contents of this report are intended for the purpose of general information and should not be relied upon as the basis for decision
taking on the part of the reader. Although every effort has been made to ensure the accuracy of the information contained within this
report at the time of writing, no liability is accepted by Chesterton Global for any loss or damage resulting from its use. Reproduction of
this report in whole or in part is not permitted without the prior written approval of Chesterton Global. May 2015.
9
Hampstead
Kentish Town
Camden & Primrose Hill
St. John’s Wood
Islington
Little Venice
Covent Garden
Hyde Park
Mayfair
Notting Hill
Kensington
Chiswick
Kew
Fulham
Putney
Tower Bridge
Westminster & Pimlico
Chelsea
Barnes
East Sheen
Knightsbridge & Belgravia
Battersea Park
Battersea
International offices
Abu Dhabi
Australia
Barbados
Canada
Cayman Islands
Dubai
France
Gibraltar
Italy
Malta
Russia
Singapore
South Africa
Spain
Reproduction of this document in whole or in part is not permitted without the prior written approval of Chestertons.
10
Canary Wharf