The prime London property rental market is now characterised by severe stock shortages and very high levels of demand, a combination that will underpin the strong price growth seen in 2010, according to consultants.

 

Average rents grew by 11.5% in 2010, according to latest analysis from Savills research department. As a result, rents are forecast to grow this year by an average of 8% across prime London and 7% in the prime central zones. This compares to a 1% growth forecast for capital values across the capital this year.

Growth in 2010 was supported by a general lack of properties available to rent at a time when increased demand for rental property, particularly from corporate tenants, was recovering, Savills latest report says.

All areas show growth with North London, including Hampstead and Islington, leading the way with exceptional growth of 17.6% last year. Demand is running at an all time high in these areas, suggesting that 2011 will be a second year of very strong growth in rental values.

While rental growth increased 5.1% in prime Central London, 10% in prime South West London, 10.8% in prime East of City and 17.6% in prime North London.

‘Stock shortages persist which is good news for landlords. The dynamic of constrained mortgage markets, of buyers adopting a wait and see approach, a lack of new build supply, a return of corporate tenants, improving employment prospects and the reduction in accidental landlords, means that strong rental growth will continue to characterise the market in 2011,’ said Jacqui Daly, director at Savills residential research.

The research also shows that the lower tiers of the prime London rental markets have seen the strongest growth in 2010 as caution amongst tenants and reduced corporate allowances have concentrated demand for smaller properties.

In prime South West London the particularly strong sales market in 2010 reduced the supply of rental properties available as accidental landlords returned properties to the sales market. Additionally, needs based family demand has persisted, pushing rental values up. Both houses and flats saw similar levels of rental growth reflecting the broad tenant base and variety of budgets in this market.

The Savills Market Strength Indicator is a useful indicator of future price drivers. For prime central London the indicator is now 11% above its long term, four year average, while stock levels are 17% below the average. In south west London the market strength indicator is at +79%, with stock levels down 40%, creating an acute demand supply imbalance, suggesting that values could rise ahead of the market average this year.

‘We expect to continue to see a growing number of UK tenants at all levels and from all age groups and walks of life. Renting is now considered a perfectly acceptable way of life in the UK, whether you simply can’t afford to get on the housing ladder, want to try an area before buying or need to rent out your own home whilst renting...