Significant growth in the private rental sector over the past decade now sees 16.2% more households living in private rented accommodation than in owner-occupied properties. In its latest resear...

Significant growth in the private rental sector over the past decade now sees 16.2% more households living in private rented accommodation than in owner-occupied properties. In its latest research report, Prime Central London estate agency, W.A.Ellis, in conjunction with independent property intelligence company, Dataloft and leading data provider Lonres, takes a detailed look at the lettings market in Prime Central London.

Key findings in the report demonstrate that:

Supply is down – the number of new properties on the market has dipped compared with the same period in 2013 (March-June), with the number of flats down by 14%, and houses down by 27% year-on-year

Supply levels of flats have fallen most significantly in the lower price brackets, with new properties on the market below £750 a week down by 19% since March 2014. At the upper end of the price scale (£2,000+ per week), supply levels have fallen by 10.2%

Rental values achieved in Q2 2014 were 5.1% higher than in Q2 2013, a reflection of the improving economic outlook which sparked a turnaround in the market in late 2013

Just 30% of W.A.Ellis' properties in central London so far in 2014 have been let to UK tenants

The PCL family house market is the most competitive with the number of family houses let so far in 2014 (at W.A.Ellis) up 12% on the same period in 2013

Family houses are the most supply-constrained homes in PCL. Since March 2014, houses have accounted for just 9.8% of properties brought to the market. The scarcity of family houses has meant tenants are paying 13.8% (on average) more for a house over a flat with the same number of bedrooms. In Kensington and Notting Hill this climbs to almost 25%.

The lettings market has become more seasonal - properties let between July and October accounted for over half (51%) of all lettings in 2013. Over the last 10 years, properties marketed in November have taken 25% longer to let than those in September.

Gross yields for a two bedroom central London flat averaged 3% last year. Yields were lowest within the most expensive postcodes, with Chelsea and Knightsbridge recording yields at 2.5% and 2.3% respectively.

Lucy Morton, senior partner and head of lettings at W.A.Ellis, comments:

“The growth in property sale values has prompted a number of landlords to cash in and sell their investment, one reason for the drop in supply levels in some areas of the market. Indeed, at W.A.Ellis, the percentage of vendors selling rental accommodation has risen from 22% to 32% over the past decade. This trend has been especially prevalent in the family house market, and is contributing to the current shortage of this type of rental property. The traditional buy-to-let market (one and two bedroom flats), however, is relatively unaffected.

Unlike investors in the mainstream housing market, investors in prime central London have long been willing to accept lower yields while prospects for capital growth remain high. Total returns continue to be attractive, but growth in prices has outpaced rents and, as a result, yields in central London have fallen.

The strength of the sales market is leaving some investors in a quandary. Many could release significant gains from the rise in value of their properties. However, selling up means missing out on the prospect of further growth. Average prices in prime central London have increased significantly, and are now 47% higher than they were in 2010.

Growth in the City employment sector has long been a barometer for the prime London lettings market, and with the London economy accelerating quicker than anticipated, coupled with London's rising population, this will continue to drive demand for rental properties and support rental values.

From a prospective landlord's view, the status quo of London's market must be appealing, with tenant demand expected to rise at a time when London struggles with an acute undersupply of homes. As residential construction increases, there will be more opportunities for investors. As price rises to-date have pushed owner occupation beyond the reach of many, landlords should be fairly confident in securing tenants.

The capital growth value is clearly slowing and the savvy investor will benefit from the next nine months running up to the General Election to build on a portfolio and invest in locations where there is an apparent shortage of stock and strong demand.”