We are pleased to share our Q2 lettings report, highlighting marginal rental growth on re-lets and the longest tenancies we have seen to date in Prime Central London.
We are pleased to share our Q2 lettings report, highlighting marginal rental growth on re-lets and the longest tenancies we have seen to date.
Average agreed rents on re-lets within our rental portfolio increased by 0.59% in Q2, the most modest growth we have seen since values dipped slightly in Q3 last year. This is reflective of the London, and indeed UK-wide rental market, where rents have risen at their slowest rate in four years, as reported by Zoopla in June. Whilst rental values have been stabilising gradually since their post-Covid peak in 2022, they remain at 26% above pre-pandemic levels.
Rents agreed on renewals within the quarter saw an average increase of 5.64%, a similar level of growth to that seen over the past two quarters. The sustained higher levels of growth for rents agreed on renewals over re-lets is reflective of the ongoing high competition and undersupply in the PCL rental market, encouraging many tenants to pay in excess of inflation to retain their tenancy, rather than risking re-entering the rental market.
This trend of tenants choosing to extend their tenancies is clearly demonstrated in the average length of tenancy data, which shows increases year-on-year since 2023. The average tenancy has reached 36.4 months for the year to date, the longest tenancies we have seen and more than double the average tenancy ten years ago in 2015 (16.7 months).
The time taken to let a vacant property in Q2 was marginally down from the first quarter to 24.82 days. Void periods have been longer this year due to the settling down of demand following the exceptional levels in 2022/23. As the market has stabilised, void periods have lengthened correspondingly, however they remain less than the 28 day pre-Covid average.
Tenants from the Asia-Pacific region made up the largest proportion of new tenants in Q2 at 32%, up considerably from Q1 (7%), reflecting the usual increase in HNW Asian students and young professionals returning to Central London at this time of year. Tenants from the UK and the EU were equally proportioned at 24%, which represented a 23% reduction in European tenants from Q1.
We saw more tenants working in professional services in Q2, a 14% increase from the first quarter. Similarly, finance professionals were up to 20% from 12% in Q1, whilst workers in tech and creative industries remained consistent with the previous quarter. We anticipate the proportion of students to increase in Q3, as more return to London ahead of the start of the academic year.
Rental values on re-lets have continued to stabilise over Q2, following the downward trajectory of rents since the post-pandemic spike. Landlords are continuing to benefit from more favourable rent increases on renewals, as tenants are willing to pay more to stay put, rather than risking re-entering the competitive rental market.
Whilst the supply and demand imbalance in Central London is easing, with more rental homes on the market this year than last year, renters still face strong competition. Whilst it seems unlikely that rents will fall, we expect growth will remain at a much steadier rate. As we head into the usually busy summer and autumn period, we anticipate to see an increased level of demand, with more students arriving into London ahead of their University terms.
The Renters’ Rights Bill is facing further delays in the parliamentary process and is not expected to become law until autumn at the earliest. Naturally, some landlords have concerns and are keen to understand exactly what action needs to be taken to remain compliant before the Bill comes into effect. Preparing for the changes early is key – LCP is at the forefront of the new requirements and will be guiding our landlords through every stage.
If you have any queries or concerns, please do not hesitate to reach out.
Read our blog on the Renters Rights’ Bill for more information on the legislation.
Get in touch to discuss your rental property and how we can help you find high-quality and reliable tenants.
