Savills plc

10/06/2020 | Press release | Distributed by Public on 10/06/2020 04:59

Rents rise in the prime commuter belt, but fall in London as Covid-19 drives tenant choice

Across the extended London commuter belt of the south and east of England prime rents rose by an average 1.2% in the three months to the end of September - the highest quarterly growth in over five years according to the Savills prime lettings index - driven by a combination of strong demand for larger properties and limited supply as some landlords withdraw.

By contrast, most locations across the UK capital saw prices fall in the quarter, with smaller properties seeing the most pronounced falls.

'Large parts of the market are being driven by people looking to make real lifestyle changes as a result of Covid-19 and the experience of lockdown in particular,' said Jessica Tomlinson Savills research analyst. 'It's too early to know if this shift in mindset and behaviour is permanent, but we expect to see it carry over into early 2021 at least.

'At the same time, levels of international demand will likely remain suppressed while people are resistant to travel, perhaps until a vaccine becomes available, and this will continue to impact rents in the most central postcodes.'

Prime rental growth

Central London

North West London

South West London

West London

North & East London

Commuter Belt

Quarterly

-2.3%

-1.7%

0.7%

-0.8%

-2.6%

1.2%

Annual

-4.7%

-2.6%

1.3%

0.4%

-4.6%

2.7%

5-year

-21.4%

-8.3%

-5.0%

-4.5%

-1.9%

-1.8%

Savills prime lettings index Q3 2020

Commuter belt

Competition for the best properties, particularly family homes in the most established commuter towns such as Sunningdale, Beaconsfield and Winchester and surrounding village locations, has fuelled price rises. People now anticipating a mix of home and office working are looking further afield, some are adopting a 'try before you buy' approach before a permanent move. This is creating hotspots in locations such as Guildford, Rickmansworth and Windsor.

Tenant demand is only part of the story, Savills reports. Over three-quarters of the firm's agents saw available stock levels fall over the summer months. Around half attributed this to 'accidental landlords' - those who originally let out a property they were unable to sell - now withdrawing from the lettings market to sell into a strong sales market. Regulatory change and a fear of possible future capital gains tax rises, have also prompted some more established landlords to exit the sector.

Meanwhile, prime London rents fell by an average of -1.3% in the quarter, and by -2.3% in prime central London and -2.6% in north and east London, markets that are impacted by travel restrictions and higher levels of new build stock respectively.

Prime south west London, which runs from Battersea, through Clapham and Wandsworth, and west to Richmond and Wimbledon, was the only prime London market segment to see rental growth in the quarter, the beneficiary of the quest for bigger homes and gardens.

Despite strong tenant demand, eight in ten Savills agents in London reported rising stock levels over the past six months. An unusually high turnover amongst tenants was reported, with some choosing not to renew a tenancy, preferring to move to larger properties with more outdoor space.

A build-up of short-let properties that came to market during lockdown is taking time to work through the market, together with completing new build, but supply levels are now beginning to correct, albeit slowly.

'How long it takes to absorb the high supply levels, particularly of smaller one and two bedroom properties, will depend on the return to normal levels of demand from international students,' said Jessica Tomlinson. 'For now, we expect London to remain a tenant's market over the remainder of this year and early part of next, before sustained rental growth returns to London and demand in the wider commuter belt and country locations eases back.'

Savills has revised its five-year prime rental forecasts for the prime London markets to average 7.6% and the prime commuter belt 11.5% to reflect the changed market conditions in 2020.

Revised 5-year forecasts for prime rents:

2020

2021

2022

2023

2024

5 year total

2020-2024

London

-3.0

+1.0

+4.5

+2.0

+3.0

7.6%

Country

+3.5

+2.0

+1.5

+2.0

+2.0

11.5%

Savills research Oct 2020