Lettings Index July 2020

Short lets drive up London rental market stock as rents continue to fall

Dated: 17 August 2020

Lockdowns across the world are causing many landlords to switch their short-term lets to long-term.  Nowhere is this more noticeable than in the UK’s capital where 37% of properties which had been previously advertised as a short let are now being offered for long-term occupation.

Inner London, which has seen both a fall in the number of tourists and a decline in corporate relocations, has been particularly hard hit.  Between the lifting of lockdown in late May and the end of July, more than one in 10 (12%) homes that came onto the rental market in Zone 1 had previously been let on a short-term basis.  This is more than double (5.1%) the figure for London (over the same period) as a whole.

And this is adding to rental stock, which in inner London was up 42% in July compared to the same time last year. In turn, this is putting downward pressure on rents.  With more properties to choose from, tenants have had more power to negotiate on their rent.  

This will be acutely felt by landlords flipping their properties from short to long-term lets.  On average the change means a 35% reduction in rent, equating to £1,952 a month less.

Of the 20 local authorities which had the highest proportion of short lets being offered on the long-term rental market, 16 were in the capital. The Vale of White Horse in Oxfordshire, which ranked 13th on the league table, was the highest non-London borough. Here 3.6% of its rental instructions had been previously listed as a short let, this compared to Lambeth which topped the list at 17.3%.

The rising popularity of staycations has meant that rural and coastal areas have kept the short-let market outside of urban areas more buoyant.

Rental growth on newly let properties

The gap between what’s happening in the rental market in Inner London compared with the rest of the country has widened. Rents in Great Britain as a whole remained flat in July.  Last month, the average cost of a newly let property in Great Britain fell slightly to £1,001 pcm, 0.1% lower than the same month last year.  However this is a slight improvement on the 0.7% year-on-year fall recorded in June.

Once again, rental growth is being dragged down by rent falls in London, the South East and East of England.  Rents in London fell -4.2% year-on-year in July, driven by a -8.4% decrease in inner London.  The increase in the number of short lets moving to the long-term rental market in inner London drove a 42% annual increase in stock levels and consequently lead to a record fall in rents.

While in outer London, rents fell -2.9% compared with the same period last year, a slight improvement from the -3.6% fall recorded the previous month.

However outside of London and its immediate neighbouring regions, rents continued to rise.  While affordability pressures weigh on rental markets across the country, the lack of stock available is softening the blow.  The South West saw the biggest rental increase – average rents here rose 2.8% year-on-year in July.  The Midlands followed with 2.3% annual rental growth.