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London Zones 2 and 3 see surge in demand

Tenants are seeking to move to the peripheries of prime Central London, primarily zones 2 and 3, in search of lower budget properties as they attempt to minimise outgoings, reports Cluttons in its Residential Property Forecasts – Q2 2013. 

Average weekly rents of £1,016 in prime Central London remain broadly unchanged from this time last year, but the volume of applicants with higher budgets is in decline, a trend which is expected to persist over the coming months.   While tenant demand in the capital is still being supported by students and new job starters, the cost conscious behaviour of businesses is being reflected in reduced accommodation allowances. This is impacting on demand and asking rents for higher budget properties.

Consequently, tenants are spreading their wings to focus on lower priced properties in zones 2 and 3, as they seek to minimise outgoings, particularly as stubborn inflation continues to erode real incomes. Areas to the east including the Isle of Dogs, Limehouse and Wapping have seen an increase in tenant demand of 42% between Q4 2012 and Q1 2013, with rents returning to positive growth in Q1 after plateauing at the end of last year.

Similarly, Clapham, Battersea and Wandsworth in the south west have collectively seen a 53% quarterly increase in tenant registrations in Q1 with a corresponding upturn in rental values across the area.

Sue Foxley, head of research at Cluttons, says:   “Supply is now creeping ahead of demand in prime Central London and this is driving tenants to seek out rent reductions at renewal. While some landlords are prepared to negotiate a lower rate or no increase to mitigate a void risk, RPI uplifts are being achieved, particularly for high demand properties such as well located two bedroom flats which suit couples and sharers alike. This is forcing a growing number of tenants to look further afield for cheaper accommodation. As a result we are seeing migration out to the periphery of prime Central London, to zones 2 and 3, where rents are significantly lower than the prime core.”

Average rents in the Isle of Dogs are currently £331 per week, less than a fifth of average rental values in Mayfair which are currently £1,744 per week.   Subdued rental growth is expected to persist this year, with increases of 3% expected, rising to 3.5% growth in 2014 and 4% in both 2015 and 2016.

House price growth in prime Central London continues to be bolstered by the supply drought, resilient domestic and international demand and the relative weakness of sterling. Values have increased by 2.3% in Q1, reaching a new historic high, with buyer demand expected to grow as cheaper debt finance becomes increasingly available.

This growth in capital values is also driving buyers to fringe locations in search of better value for money.   Cluttons has upgraded its forecast slightly for house price growth in prime Central London to 5% this year, with increases of close to 4% per annum expected between 2014 and 2018.

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