Knight Frank’s latest market report for Prime London locations suggests that stock levels remain low by historical standards, with the number of new properties coming to the market down by around a third compared to the five-year average.
Meanwhile, the number of new prospective tenants registering with Knight Frank across London in September was 68 per cent above the five-year average.
As a result of this imbalance persisting for longer than anticipated, Knight Frank has boosted its 2023 forecast and says it now expects rental values to end 2022 some 15 per cent higher in Prime Central London and 12 per cent higher in Prime Outer London.
“We expect 6.0 per cent growth in both markets next year, up from a forecast of 3.5 per cent in July” reports the agency.
Rental values grew by 18.6 per cent in the year to September in PCL, which has narrowed from the remarkable 29.2 per cent in April. In POL, growth was 15.4 per cent, down from 23.5 per cent in April.
The agency says that the key question for the lettings market is whether current more uncertain conditions create a larger number of new landlords or tenants.
It says in its latest market snapshot: “On the one hand, the uncertainty will boost the supply of lettings properties. This will be the result of sales failing to exchange due to mortgage rate volatility and owners to deciding to let their property in the short-term after failing to achieve their asking price. At the same time, a growing number of frustrated buyers will become tenants, particularly if they sense price declines will be short-lived.
“The extent of this influx of buyers and sellers from the sales market will depend on where mortgage rates settle. The difference between 5.0 and 6.0 per cent could potentially have a strong bearing on behaviour.
“If a weaker sales market creates more landlords than tenants, this will put downwards pressure on prices – and vice versa. That said, we would expect property markets in PCL to be more insulated from the impact of rising mortgage rates due to higher numbers of HNWI buyers and the return of international travel. The percentage of cash buyers in the first nine months of this year was 52 per cent in PCL compared to 30 per cent in POL.”