Rental prices in prestigious London addresses have been driven to record highs, with reported increases of more than 26% since the summer of 2009. Demand is largely coming from Asia and Europe as new investment inflows from abroad seek out suitable lettings in the capital. As Urban Exposure’s Adrian Mediratta comments: “it’s especially encouraging that these figures reflect investment flow into London, which counters some of the doom and gloom we are constantly hearing in relation to the economy”.
As Knight Frank’s Liam Bailey explains, over the last two years, rents in prime central London locations are rising, and according to their latest figures, since January of this year they are up by almost 7%, with a 0.2% increase reported in August, as Bailey goes on to comment, it’s good news for investors:
“Despite the high levels of capital value growth in London over the past two years investors have been securing higher investment yields. Average prime gross yields have been pushed higher by rapid rental growth, moving from 3.3% to 3.6% in central London between June 2010 and August 2011.”
Compared to the same period in 2010, from June to August this year new rental instructions were up by as much as 23%, with even more substantial increases expected before the year is out. Demand has risen with supply; meaning that new rental stock is being rapidly turned around, keeping prices and demand from potential tenants high. Even as sales sectors in prime central London are seeing unprecedented demand, with property prices increasing exponentially this year, the economic uncertainty at home and abroad seems to be driving international demand in rental sectors even higher; with overseas interest accounting for as many as six out of ten tenants.
The proportion of European tenants has increased overall within the market, reflecting the continued demand for property from the smaller European banks and financial organisations, establishing or expanding their London operations, and over the coming years, it is anticipated that above-inflation levels of rental growth will be witnessed.
Urban Exposure’s Adrian Mediratta comments: “gross yields of 3.6% are obviously not going to set the world on fire, but as we are witnessing wealth preservation as the overriding concern in current investment thinking, even a small rise in yields is obviously welcome. I would hope capital growth does not rise at a faster pace to rents which would erode the yield growth eventually, but overall a good story for investors.”
Adrian Mediratta and the team at Urban Exposure provide a property sourcing service to investors looking to buy in Prime Central London, who are interested in yielding commercial and residential property.