Rental growth in prime central London down 3% in year to June 2106

Taylor Scott International News

Annual rental value growth in London’s prime property market fell by 3% in June, continuing a decline experienced in recent months that has been driven by higher stock levels and uncertainty in financial markets. The index report from real estate firm Knight Frank relates to before the UK’s decision to leave the European Union, but Tom Bill, head of London residential research said that the current sense of uncertainty following the vote is likely to boost rental demand in the short term. ‘However, any upwards pressure on rents is likely to be countered to some extent by rising stock levels, which will tick up in line with the ongoing uncertainty in the sales market and there is early anecdotal evidence that some vendors are deciding to let their property until more clarity emerges,’ he explained. Bill pointed out that underlying demand remains strong and the number of new prospective tenants that registered in June was the highest it has been since September 2015 and the number of viewings was the third highest on record. Meanwhile, the number of new tenancies agreed in June 2016 was almost identical to the same month in the previous two years. ‘For investors able to see through the current political bout of political uncertainty, there are also grounds for longer term positivity,’ Bill added. The prime gross yield in June was 3.1%, which is markedly in excess of the current record-low yield on a 10 year government bond of about 0.8%, or the so-called risk-free rate and Bill pointed out that a mood of indecision in financial markets is also more accentuated than it was before the Brexit vote, which will also cause some tenants, particularly in financial services, to rent for longer. ‘More broadly, uncertainty over the result of the referendum has been replaced by uncertainty over the more nuanced question of the UK’s relationship with Europe and demand will strengthen further as clarity emerges surrounding key negotiating positions,’ Bill said. He also pointed out that as the Brexit negotiation process unfolds, it should be remembered that no candidate for Prime Minister has indicated any willingness to relinquish London’s role as Europe’s leading financial centre. Indeed, Chancellor George Osborne has signalled he may cut corporation tax in a sign that London will strive to remain competitive versus other European cities, both as the key financial and tech market in the continent. The prospect of an interest rate cut in the UK is also likely to stimulate a degree of activity and the likelihood of further cuts by central banks in other countries, particularly in Asia, will cause global investors to seek the type of higher returns on offer in property, according to Bill. ‘This search for yield will be allied to a favourable currency play due to the current weakness of Sterling. Meanwhile, other fundamentals that remain unchanged after the referendum include the supply shortfall and projected population growth over the next decade in London, factors that will… Taylor Scott International

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