Given the uncertainty that shrouded the immediate build up to, and aftermath of, the EU referendum, the current lettings market in London and the Home Counties has surpassed the cautious optimism that has been building over the past few months.
Immediately after the vote there was an inevitable spike in new instructions and activity levels have gone from strength to strength.
August has been a record month for us and has highlighted a number of interesting but positive statements for the lettings market post-Brexit.
The most rapidly growing area of demand that we have seen has been in the sub-£1000 per week market. Equally, at the other end of the scale, we have seen a flurry of activity in the super-prime market which shows that the growth is not limited to just one price bracket.
The prime London market, which has struggled for some time, is currently experiencing healthy supply levels and even though tenant applications are on the rise, especially in our new development offices, the position to negotiate remains strongly in favour of the tenant.
At the same time, yields continue to remain low but the majority of our investors are aware of that and they are looking at the total return as the most important factor when letting properties in the current market.
Although market conditions are increasingly receptive, there are lessons to be taken from the deals that have been happening over the past couple of months, particularly around pricing.
Landlords need to be realistic when it comes to pricing in an increasingly competitive market. This includes considering price reductions, however significant, in order to reflect value in the current climate.
An agent’s primary responsibility is to their client; this includes providing them with the most up-to-date market information that will help them to make an informed decision on realistic pricing as well as furnishing, design and in some cases re-financing options where applicable.
The agents that are helping clients to find the right balance in these areas are the ones that have maintained strong deal volumes.
Most of our landlords are looking for a slightly longer period of time before they make a strong adjustment to price levels but if there is any influx of new instructions coming to the market similar to the 2008 Lehman’s crash it is likely to be more towards the prime end of the market where disgruntled vendors are becoming a new wave of new landlords this year.
At Knight Frank, the number of corporate relocation enquiries that we have had this year has been another positive growth area due in part to effects of weaker sterling.
In July, this was dramatically up on last year, reinforcing the point that confidence in London as a capital city of choice remains strong. With office vacancy rates at only 2%, the uptake in terms of new recruits and corporates entering into the market as new tenants this year is very encouraging.
Although we are unlikely to see much improvement in rental value growth and yields for the time being, this is the way that the market was going before the referendum. Ultimately, I am optimistic that the lettings market will continue to remain resolute from a transaction perspective for the foreseeable future.
*Tim Hyatt is Head of Lettings at Knight Frank