The lettings market has been the partial beneficiary of the weak sales market, with demand from tenants and the number of lettings being undertaken, both up by around 25% on a year-on-year basis. The problem for landlords is that the volume of stock coming into the market has risen so rapidly, by between 50% to 100% across central London, that competition for tenants has driven rents lower and pushed voids rates higher.
The competitive environment for landlords means that rents fell again in early 2009, by 7.4%, and are now 18.2% below their March 2008 peak, and 3.6% below the previous market peak in September 2001.
Investment yields have pushed out, thanks to more rapid falls in capital values rather than to the resilience of rents, However, the 5% target for a central London gross yield is more achievable now than at any time in the past five years. For investment grade stock, gross yields of 6% or even approaching 7% have been achieved.
The outlook for the rental sector is positive. While rental levels are still pointing slightly down, there is growing evidence of stability in the market, especially in the lower price brackets (up to £1,000 per week). The growth of stock has not continued exponentially, and there appears to be some degree of balance emerging in the market, although the key advice for landlords- to keep asking rents competitive- remains unchanged.
Vanessa Evett at Knight Frank, Canary Wharf