The Rental Market
Summer 2014

According to LSL Property Services’ Buy-to-Let Index, rental rates in England and Wales have risen by 1.4% in the last 12 months to June 2014, up from an annual rise of just 0.9% in March, with 80% of regions seeing higher rents than the previous year. In London, the picture was also positive with an annual increase in rents of 1.6% and a monthly increase of 0.7%. On a monthly basis, this is a significant turnaround from the 0.4% fall we had seen in March and again in April.

In prime central London (PCL), according to Knight Frank’s Rental Index, rental rates have now risen for the fourth consecutive month, increasing 0.9% in June 2014 – the largest monthly increase in over three years. The annual decline is now down to only 0.4%, so if growth in rates continues at this pace it will be back in the black by July and the longest period of decline since the inception of the Knight Frank index will be over. Quarterly PCL figures show an increase of 1.5% since March 2014, which is the second quarterly rise in over two years and confirms the market appears to be at the end of its decline.

The downward shift in the rental market began in mid-2012, when many jobs were lost in the financial sector. According to Knight Frank’s data, the recovery has been slow, but global economies, including the US and the UK, are beginning to rebound. It is early days and the picture varies across PCL, but financial indicators are positive (see figure 4).

With regards to annual gross yields on rentals, according to LSL Property Services, although they have declined slightly to 5.1% since June 2013, landlords in England and Wales are currently averaging total annual returns of 11.8%; the best total returns since June 2010. LSL estimate if rental rates continue to rise at current levels, total annual returns could reach 13.4% over the next year. London is now averaging an annual gross yield of 4.3%, having declined slightly over the last couple of months.

• LSL Property Services Plc’s Buy-to-Let Index, March and June 2014;
• Knight Frank’s Prime Central London Rental Index, February and June 2014;