London rents to fall after lockdown: will they stay low and how will tenants be affected?

How will rents react when lockdown starts to lift?
Daniel Lynch

Rents are expected to fall in the wake of coronavirus lockdown. But will they stay low, and if so, for how long?

Research from Hamptons International shows 70 per cent of tenancies that were due to end in March this year were renewed – the highest number in any March since 2008.

Rents are falling in London

Rents on renewed tenancies in London fell by 2.2 per cent year on year as the economic impact of lockdown hit renters first and hardest.

Many London renters are freelance or hospitality industry workers and their job security can be precarious.

“Tenants’ concerns about their future income prospects, combined with greater risk of void periods for landlords willing to advertise their property on the open market, resulted in the rent falls.

"London, where tenants’ incomes are more stretched, recorded the biggest fall in rents,” said Aneisha Beveridge, head of research at Hamptons.

The report also shows an 11 per cent rise in homes available to rent, which it says is the result of short-let landlords switching to longer lets.

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Overall demand for rental accommodation fell in March as lockdown measures were introduced, with Hamptons reporting a 31 per cent drop in new applicants looking for a home.

However, along with several other national estate agents, Hamptons says this is already starting to be reversed as people look ahead to life after lockdown.

Demand for rental homes set to increase after lockdown

“Once lockdown restrictions ease, we expect activity levels to rise. Renting offers more flexibility than buying a home, so as uncertainty rises, so does the demand for rental homes,” said Beveridge.

Research from Knight Frank painted a similar picture. The agent found the number of renters looking for a home dropped 59 per cent year on year in the first week of lockdown. A month later in mid-April, the number of new prospective tenants was 28 per cent lower than the year before, while the number of online searches for rental properties was 10 per cent higher than the five-year average.

“A lot of landlords have floor plans and photographs ready to go so we’ve seen landlords re-letting properties and there hasn’t been a fall-off yet in terms of the number of properties on the market,” said Tom Bill, head of research at Knight Frank.

“People are starting to plan ahead and the rental market is a lower financial commitment with fixed-term periods of occupation. It’s the most nimble part of the housing market so any indication that people are starting to think about life after lockdown, you’ll start to see that first in the numbers in the rental market.”

Will rents rise again this year?

Hamptons said this bounce in tenants will not necessarily push up rents. “Although demand for rental accommodation is set to increase, and there are already signs of it picking back up again, the longer-term economic damage to people’s jobs and incomes means that rents on newly let properties are likely to fall between two per cent and five per cent this year,” said Beveridge.

In contrast, Savills predicted “an offsetting bounce in rents” after a short-term fall, once “needs-based” renters return to the market.

Head of research Lucian Cook cited would-be buyers, especially first-time buyers, as one group likely to swell the ranks of renters in the coming year, as they ride out the period of economic uncertainty in the wake of lockdown.

“In the 13 years I’ve been doing this job it’s the most difficult rental market to read,” said Cook. How long rents will remain reduced, and by how much, will depend on the length of lockdown and post-lockdown employment prospects, he added.

He also said the possibility of accidental landlords increasing supply in the market, as well as the outcome of Brexit negotiations that are due to conclude this year, could add to market uncertainty.

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