The prime London residential market continued to see quarterly growth in the three months to the end of September 2011, but for a second quarter growth in achieved rents failed to keep pace with underlying house price growth, according to Savills latest quarterly prime London index.

“Conditions in the prime London rental market are still favouring landlords,” says Yolande Barnes, director of Savills residential research. “But the fact that house prices have outpaced rental growth means that yields remain suppressed, so the advantage is of having good occupancy levels rather than income growth.

“The balance of supply and demand is showing that supply coming on to the rental market is below average for this time of year. We had anticipated that by this stage in the market we would be seeing accidental landlords, those unable to sell and so forced to rent their property, bringing stock to the market. A robust prime London sales market has, to date, meant this has not been the case.”

Corporate demand for family homes has dropped off, according to Savills and this trend is particularly noticed in south west London where house rental prices dropped 0.7% in quarter 3.

Analysis below shows corporate tenant demand as a percentage of all new lettings, comparing 2010 to 2011 year to date

Location


2010


2011

Prime Central


14.1%


7.4%

East of City


11.7%


5.8%

North London


7.6%


5.2%

South West London


8.8%


8.9%

Jane Ingram, head of lettings at Savills says, “Typically, the prime London family house market is fuelled by corporately-funded families who would rent a 4 bed house, but we are increasingly seeing them downsizing to 3 bed properties with their budget cut from £2000 per week to £1200 per week.

“The lettings market is definitely responding to the current economic uncertainty and the corporate-geared market always suffers most at such times and rents are coming off by around 5%. Companies are sitting on their hands and relocation demand is therefore coming in at the lower end of prime, with budgets below £1000 per week.”