PRIME LONDON LETTINGS REPORT: Q1 2024

LCP Private Office issues its Q1 2024 lettings report highlighting a gradual easing in the PCL rental market.

Q1 2024 saw a diverse range of occupations amongst our tenants. Tenants in the technology sector represented the largest proportion of new tenants at 29%, an increase from 8% in Q1 2023 and 5% in Q1 2019.

Individuals working in finance continued to represent a significant proportion of new move-ins at 25% followed by creative individuals.

Over 50% of LCP’s new tenants were from the EU in Q1 2024, an increase on Q1 2023 levels where they represented 24% of new tenants. Q1 sees higher levels of domestic and EU tenants, often corporate relocations as many international students have already returned in Q4 to continue their studies. Tenants from North America represented the second largest group of new tenants.

Signs of the rental market stabilising as agreed rents on re-lets saw increases of 6.1%, a slowing from the previous quarter as well as Q1 2023. However re-lets are still higher than Q1 2019 levels where rents fell 1.9%. A growing supply of rental stock is easing pressure on rents and also stabilising tenant demand. Rents in PCL are 40% higher than the same time 3 years prior.

Rents on renewals stabilise for the second quarter as Q1 saw renewal increases of 7.3%. The rental market continues to show signs of returning to normal conditions after a period of unsustainable high rents and demand. As more stock comes to the market, landlords will need to adopt more competitive pricing to retain current high-quality tenants.

The average length of tenancy in Q1 2024 reached 34.6 months. Competitive market conditions encouraged many tenants to extend their current leases and stay at a higher rent, than risk significant rent rises on the open market. With supply increasing, it remains to be seen whether 2024 will maintain these high tenancy lengths.

The time taken to let a vacant property reached 51.5 days in Q1 2024. Q1 is seasonally a quieter period in the rental market due to the aftermath of Christmas. As market conditions begin to return to normal levels, landlords will need to adjust their pricing strategies to attract HNW tenants.

Liam Monaghan, Managing Director of LCP Private Office, comments on the market

Our lettings report shows that the prime London rental market is beginning to show signs of a gradual easing after a period of unprecedented demand.

The buoyant rental market has encouraged many tenants, especially those who benefitted from favourable rents during Covid, to look towards the sales market. With rent demand easing and supply increasing, there has been a much-needed alleviation of pressure on the market. However, landlords are still seeing rent increases of 6% on re-lets and 7% on renewals.

Properties that are well-presented and appropriately priced continue to be snapped up by high net worth tenants. Landlords now face a choice between accepting slightly lower rents and experiencing shorter void periods, or setting higher rents with longer vacant periods.

There is positive news for landlords regarding mortgage rates, as headline rates are becoming more competitive. Investors can now secure a 5-year fixed-rate mortgage for buy-to-let properties at close to 5%, compared to approximately 8-9% throughout 2023. Of course there needs to be consideration on the loan to value (LTV) sought to ensure sufficient rental cover. With flats still priced around 9% below their peak in 2015, the current market presents a favourable opportunity for investment with the base rates signalling to reduce throughout 2024, this will bring back investor sentiment in PCL.

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