Tenants were stuck in situ during lock-down until the ban on moving was lifted on the 13th of May, many are still reluctant to make any changes until they know what their job situation is going to be, while some are moving out – the so called “second wave” is now prolonging the uncertainty.
Landlords, fearing they may lose tenants, and being unable to fill the vacancies, have become more flexible with lease renewals, most willing to extend a tenant’s stay on a reduced rent. According to a report out in the summer by Chestertons, one of London’s largest estate and letting agencies, landlords were experiencing month on month falls as around 30% more vacancies were on the market.
Chesterton’s highlighted the main reasons for the drop off in demand as:
- The overseas student market – demand fell of a cliff as many overseas failed to take up new courses in October.
- There have been far fewer corporate relocations as companies have encouraged homeworking and put a block on recruitment.
- Existing tenants are delaying committing to new leases as they either consider cheaper accommodation with rents falling, or they look further afield, outside of London.
- Some tenants are successfully renegotiating lower rents while they wait and see, avoiding the hassle and cost associated with moving.
Since the summer there has been a definite trend for inner London tenants to look for more spacious accommodation, accelerated by the pandemic and homeworking. Of those that have made a move outside of the city, over 60 per cent have moved to somewhere bigger. Typically they will be moving to somewhere that’s cheaper and more suitable for home working, leaving more vacant rentals in the city.
Whilst previously the trend to move out to suburbia had been mostly dominated by “early nesters”, couples who plan to start a family, more recently younger tenants too have started to make the move out – there’s definitely an increased appetite for more indoor work space, and more space outdoors as well.
All of this has created a supply / demand imbalance such that inner London landlords are having to substantially discount their properties, some by as much as 10-15% in order to maintain tenant occupation, or risk facing a lengthy void period with no rental income.
The outlook is likely to be leaner times in the short-term, but according to Chestertons, rent levels should to some extent be cushioned by the shortage of properties available to rent in other locations across the country. It is estimated that average UK rents may fall by 5%-7% for 2020 and are likely to remain flat next year, though the uncertainty of the “second wave”, and the prospect of a quite severe recession, adds to the uncertainty.
Earlier in the year Chesterton’s forecast was that, as the proportion of people’s incomes spent on rent is higher in Greater London, rents would likely fall by 10% to 12% and by 13% to 15% in inner London, in 2020. Their forecast for 2021 was a fall of 4%-6% and 2% to 4% respectively, though the current upsurge in Coronavirus could easily mean the these figures being revised upwards.
It is thought however that any fall will be cushioned again by the fact that some landlords, given these tough trading conditions, will sell up, reducing the supply of properties to let. And although there are still likely to be more vacancies in central London, it is thought that rents will recover quickly if there is a rapid economic recovery and when workers start to move back to their offices.