Rental values will end 2021 flat in prime central and prime outer London, predicts Knight Frank

Rental values have fallen steeply in London and the Home Counties since the start of the pandemic. The bounce-back is now underway.

It’s hard to know whether the ‘race for space’ or the ‘return to the office’ is having a bigger impact on the lettings market in London and the Home Counties.

The ‘return to the office’ is certainly a more recent trend. In the first half of the year, the two areas that experienced the largest increase in rental values in the capital were the leafy locations of Hampstead (+2.5%) and Wimbledon (+1.5%).

However, the largest rise during the second quarter of the year was in Wapping (+1.9%), an area popular with workers in London’s two main financial districts. Meanwhile, rents in Aldgate, an area next to the City, saw the biggest increase in the month to June (+3.5%).

Although the government relaxes remaining lockdown restrictions from today, the long-awaited return to the office began driving demand around London’s financial districts several months ago. It is a trend being replicated elsewhere in the world, including Manhattan.

Indeed, demand in the lettings market reached record levels across London and the Home Counties last month, and that was before the relaxation of international travel restrictions.

Meanwhile, rents are being pushed higher by supply shortages in the central London house market as well as suburban locations and the Home Counties as the race for space intensifies.

The shortages have become more notable in recent months, exacerbated by large numbers of landlords selling up ahead of June’s stamp duty holiday deadline.

In some areas, where stock shortages are particularly acute, asking rents are at or above their pre-pandemic level although rents in these locations should moderate as more supply comes through.

The current strength of the rental market was underlined by new-build figures from Molior last week. Stronger sales numbers in the second quarter this year were boosted by “a welcome return of the build-to-rent sector to the forefront of industry activity” said Molior, underlining confidence in the sector.