Rents for London luxury homes fall
Filed under: House Prices
Upmarket estate agents Savills says this is because job cuts among bankers have reduced demand for upmarket apartments and houses. Shrinking bonus pots have also dented their spending power.
Prime London rents fell 0.4% to £60 a square foot in the year to mid-June, according to Savills, and are likely to remain subdued for the rest of the year.
Another reason is that traditional high-net worth tenants now prefer to buy than to rent to shelter their wealth. Ultra prime rents have fallen 5% since their pre-Lehman peak. Those continuing to rent have focused on iconic, fully-serviced buildings, meaning the ultra prime market has become "very selective".
"The financial sector has long been the lifeblood of the prime London rentals market and rents have struggled to limp past their pre Lehman peak," says Lucian Cook, director of Savills research.
"The profile of tenants has changed as a direct consequence of weakened sentiment, with a notable decrease in big ticket tenants employed in the financial sector in the prime central and east of City markets of Canary Wharf and Wapping. As such, there are a number of new and increasingly localised market forces being seen in the capital."
He described London's prime rental market as a barometer for what's happing in the jobs market in the City of London.
The job outlook for bankers is grim: the number of financial sector jobs in the capital is set to slump to its lowest level in 16 years this year, according to think tank Centre for Economics and Business Research. It predicts that 25,000 more jobs will be lost this year as the eurozone lurches from crisis to crisis.
Royal Bank of Scotland just announced another 600 redundancies as a result of new UK rules due to take effect at the end of the year, bringing its total number of layoffs since it was bailed out by the taxpayer in 2008 to 36,000.
For estate agents, the only hope are hedge fund managers, who have more money to spend than bankers - and foreigners.
A similar thing is happening in Hong Kong, where luxury home rents fell at the end of last year for the first time since mid-2009 and rents are expected to fall by 10% this year.
However, in east London, demand from young City professionals for flats at £250-400 a week is described as "red hot". Demand for one-bedroom flats in Islington has also remained high.
The other big news, according to Jane Ingram, head of Savills lettings, is that family demand is finally coming back to some areas of the prime market, where houses have underperformed flats over the past year, but its focus is shifting away from core central London.
Families have returned to Kensington, Chelsea and Knightsbridge in the past few weeks and the £2,000 to £5,000 per week rental market has shown signs of picking up after a few "very slow" months.