The fundamentals underpinning rental growth look set to be maintained in 2011 with:
• limited additions to rental stock in both the new homes and secondhand markets,
• demand for rental stock being maintained as employment levels in central London are maintained and possibly enhanced,
• barriers to securing mortgage finance keeping occupiers in the rental sector for longer than was historically the case.
As a result we consider that there is potential for rents to increase by a further 8-10% by the end of 2011. Under this scenario, rents will have risen by 29% over two and half years from mid-2009, based on fundamentals which are unlikely to be radically altered in the medium-term. Renting is now more expensive than buying when comparing monthly interest-only mortgage payments at a notional 5% interest rate for a two-bedroom flat, compared to monthly rent.
Ultimately the health of the Midtown, City and Docklands limehouse rental market is dependent on economic factors and their impact on employment levels in central London. There is broad agreement that the UK economy recovered more rapidly than expected from the recession, posting four consecutive quarters of growth in GDP to third quarter 2010. The IMF forecast 1.7% growth in GDP for the UK in 2010, increasing to 2% in 2011. The Purchasing Managers’ Index (PMI) for September 2010 showed three key London indices move into positive territory for output of goods and services, new orders and employment. Increased activity the latter part of 2010 provides the basis for marginal growth in employment in 2011.
Looking further ahead, the rental market is also likely to be boosted on a temporary basis by the Olympics. In our view from mid-2011 onwards there is likely to be a premium attached torental property with good access to the Olympic Park. Both owners and tenants will look to take advantage of a huge temporary boost to demand in the lead-up to and during the Games from support staff, temporary workers, the world’s media and, of course, the spectators. Those who can sub-let or offer short-term lettings to meet these needs can expect to secure a welcome one-off windfall of premium rent.Hurford Salvi Carr is actively working with our clients to achieve premium rentals for the Olympic period.
