URBAN HEALTH METHOD

Even in 2018 prime sales and rental markets were struggling with on going political and economic uncertainties.  As a consequence both buyers and tenants lacked confidence and approached each transaction cautiously. The inevitable result was price sensitive markets.

However, prime markets also respond to other factors alongside Brexit's political unknowns. Right now year-on-year rental falls in the London prime markets are actually at their lowest since March 2016. This is in spite of the prospective peak of profound political uncertainty.  Also of note is the fact that different market drivers,alongside the ubiquitous Brexit, have not impacted universally on the different parts of the market.

Bearing in mind it's judicious to learn lessons from history what can we learn from rental downturns? What are the prospects for the market as we move towards the end of 2019?

We know that a catastrophic event such as 9/11 resulted in a double-digit fall in the prime London rental market. It also happened after the last major financial crisis over a decade ago. In fact the results of both these two drivers equate to falls of 20 per cent and 15 per cent respectively. What was even more significant is the speed with which these declines really did move universally.  These have been much more dramatic than the relatively slow decline that has been witnessed more recently.

The decline may well have been slower but the impact is still being felt quite keenly. For example, rents in Central London have fallen by 16.5 per cent. Elsewhere within the prime London market rents have also been lower, falling at an average of approximately 6.4 per cent. This represents a marked difference and questions have been raised about this disparity.

Yet reasons for this are down to the current landscape. In the past single triggers have created rental downturns. These immediately impact on occupational demand. The first casualty is usually overseas demand and of course, demands from business and financial sectors. However, the current downturn appears to be experiencing far more complex drivers.

It has to be acknowledged that uncertainty has played a part. With three years passing since the Brexit referendum an acceptable resolution is still way off being agreed, let alone negotiated. The financial sectors have consequently been cautious and corporate budgets continue to be constrained. 

Yet, perhaps surprisingly, this has not had as much of an impact as might be imagined. The reason is that these effects have been offset by changes in tenant needs. Right now tenants have a far more diverse set of specific needs. This is particularly evident in Greater London and outside central areas.

High stamp duty has also had an effect on behaviours. Renting now looks far more attractive, especially with the fall in rents. Therefore rental demand has increased. However, there is a caveat as these new breed of tenants are extremely price-sensitive.

In addition there has been equal influence from competing levels of supply. Significant within this niche have been accidental landlords. Quite often they have been forced to balance out the considerable period of malaise and sluggish sales by offering property to the rental market.

Also new build stock is increasingly competitive by being acquired by cash rich investors. Added to this is the build-to-rent sector is far more sophisticated and will continue to react to changing ways of urban living.

With these factors in mind we have to ask: is there any opportunity for a rental recovery?