The London rental market is notoriously fast-paced, but there can be huge variations from area to area and the forecast for 2023 remains uncertain.
The property investment landscape in London has changed a lot over recent years, particularly depending on the specific location in which you are buying. Compared with the UK as a whole, both the sales market and the lettings market have lagged behind, meaning many investors have found better returns elsewhere.
However, the capital remains one of the main economic hubs in the country, with scores of young professionals and graduates in particular being drawn there by the range and quality of jobs on offer. With a huge number of these workers renting rather than buying, it keeps rental demand very high in many areas.
That being said, levelling up and the cost of living crisis are two factors that have influenced a wave of not only inhabitants but increasingly companies to leave London and make the most of the growing number of opportunities in the other regions of the UK, such as the Midlands and the north west.
And in the current climate, it is generally the priciest parts of the city that are struggling the most due to stretched affordability and increased pressure on borrowing. Yet, according to new data released by Foxtons, some parts of the London rental market are bucking the trend.
London rental market in numbers
Between January 2022 and January 2023 – the month for which Foxton has compiled its latest figures – tenant demand in the London rental market as a whole has diminished by -4%. Meanwhile, in the same period, the level of supply in the sector has been boosted by 5%.
But looking at each part of London individually, the picture is drastically varied. For example, tenant demand in the West London rental space has shot up by 29% over the 12-month period, while supply has struggled to keep up with a 9% increase.
At the other end of the scale, rental demand from tenants in North London has dropped by a huge -33%, and supply of rental homes there is down by -12%. Another heavily mismatched area is South London, where demand has risen 7% during the period but supply has shot up by 27%, according to Foxtons.
Such huge disparities and significant shifts in each part of London make it extremely difficult to predict the year ahead, and how each market will be affected by inflation, higher mortgage rates and the cost of living crisis.
Looking at the capital as a whole, Foxtons reports that there were 19 potential renters competing for each new property in January 2023. Although this is high, and demonstrates the competitive nature of the London rental market, it is 8% lower than January 2022.
Tenants have increased budgets
Predictably and as has been reported across numerous other data sources, Foxtons found that rents have been increasing across the whole of the London rental sector over the past year. This is likely to be one of the drivers behind some people opting to live further afield, particularly with the rise of flexible working.
In Central London, rents went up by an average of 25% between January 2022 and January 2023. This was followed by a 20% uplift in South London and 19% in East London.
Interestingly, the property type in London to see the highest annual rental price increase was three-bedroom flats, at 25%. The much-reported “race for space” could be a driving force behind this, as people have become accustomed to spending more time in their homes and value the extra space more than ever.
The amount tenants are budgeting for their rental outgoings has also increased, says Foxtons, with the average applicant now putting forward up to £500 a week as their top price to pay – up by 9% on January 2022 and even 2% higher than the previous month in December 2022.
And tenants’ budgets for London rental property were not far off what they ended up paying in January, with figures showing that on average renters paid 99% of their initial budgets. This is 3% higher than the previous year.
Gareth Atkins, Foxtons managing director of lettings, said: “With a 7% decrease year on year, January has seen the same long-running trend of low lettings supply that has fed the bottleneck on London’s high demand and driven up competition and prices across the capital.
“There is an opportunity for enterprising landlords to invest in the buy-to-let stock that’s come to the market this new year and contribute to London’s supply of homes to let,” Atkins added.
