Rental growth picks up following seasonal slowdown

Posted on Wednesday, April 12, 2023

Prime London rents picked up again over the first three months of this year, according to Savills Q1 2023 Prime Lettings Index.

Rental prices are up 1.4% in London in Q1, which is a small increase on the growth seen in Q4 2022 (+0.7%), however this is a notable slowing from the 2022 peak (3.5% in Q1 2022).

Annual growth has slowed across every London region to total +8.7% down from a peak of 13.8% in September of last year. But prices are slightly up on the quarter in all regions except prime central London, where growth has dipped marginally – signalling a slowing down of significant rental growth for this market.

Smaller properties have performed the strongest over the last three months, with growth for one-two bed properties up +1.6%, driven by domestic and needs based tenants. However, prices for houses are also still rising (up +1.4% on the quarter) due to a lack of stock available on the market – particularly in the South West (1.8%), and North and East London (2.8%).

Jessica Tomlinson, residential research analyst at Savills, said: “While the rental market is continuing to defy all expectations, rising inflation and the increased cost of living means that we cannot expect rents to keep pace. With the return to the city movement largely behind us, rents – particularly at the bottom end of the prime market – are likely to stabilise over the next couple of months. As a result, we anticipate the gap between tenant and landlord expectations to widen in the short term, with landlords who choose to price sensibly able to attract the most demand.”

More than half of Savills agents agree (59%) that a lack of stock is constraining tenants choices, while a  third (34%) say that tenants are expanding their search across multiple London locations.

“With some landlords selling up, and tenants locking in for longer to secure existing rental prices, the market continues to suffer from a lack of stock. However two in five (43%) of London agents believe that stock will increase over the next three months as tenant demand waivers, and as more accidental landlords filter through from the sales market,” continued Tomlinson.

Rents are also up slightly across the prime commuter belt (+1.3% in Q1 vs +0.6% in Q4 2022), however annual growth has fallen to its lowest point in two years (+4.8%).

Across the whole commuter belt, rental values have increased by a significant +18.3% since the start of the pandemic.

London’s outer commuter belt has seen the strongest growth on the quarter, up +1.9%, according to Savills. However, the inner commuter belt has seen the largest acceleration in growth, up +1.4% in Q1 2023 (an increase from +0.1% in Q4 2022), largely driven by stronger performances in Tunbridge Wells (3.3%), Harpenden (2.6%) and Sevenoaks (2.2%).

Tomlinson added: “Rental growth has picked up again after a seasonal slow down experienced towards the back end of last year. Here too, smaller properties are continuing to outperform larger homes, a sign that the market is now dominated by needs based, rather than discretionary tenants who tend to spend more.

“But while rents are still growing, a third (31%) of Savills agents agree that they have seen more stock come to the market over the past three months, and more than half (63%) of Savills agents agree that they expect to see a further increase next quarter. This should help to stabilise rents, and see growth across the commuter belt return to historic norms.”

Prime London lettings index, Q1 2023

Q1 2023 PCL North West South West West North and East
Quarterly growth 0.8% 0.8% 1.7% 1.8% 1.9%
Quarterly growth, Q4 2022 1.0% 0.3% 0.7% -0.1% 0.9%
Annual growth 9.2% 9.0% 7.3% 6.9% 10.2%
Growth since Mar-20 11.3% 14.3% 18.4% 12.3% 12.7%

Source: Savills prime London lettings index, Q1 2023

Prime commuter belt lettings index, Q1 2023

Q1 2023 Suburban Inner Commuter Outer Commuter
Quarterly growth 0.3% 1.4% 1.9%
Quarterly growth, Q4 2022 0.0% 0.1% 1.8%
Annual growth 3.2% 4.4% 6.7%
Growth since Mar-20 16.0% 19.7% 18.7%

Source: Savills prime lettings Index, Q1 2023 

Via @PropertyIndustryEye