London calling: demand for city centre living bouncing back?
The London rental market is showing signs of a return with recent buy-to-let mortgage data indicating that people are once again seeking out the buzz of urban living. Our Mortgages Managing Director, Richard Rowntree provides his thoughts.
Walking through central London on a Saturday afternoon recently, I noticed a distinct difference in the atmosphere to recent months. It had some of its old vibrancy back, the noise and the jostle, people laughing and socialising. Not quite normal but heading in that direction.
This step towards familiarity is relevant to the private rented sector because it appears to be having an impact on the market. Both Zoopla and Rightmove have both recently reported an upsurge in searches for rented property in more central parts of London.
Tenant demand for properties located in city centres - most notably London - dipped over the past year after successive lockdowns led to people returning to live with parents, moving back to home countries or reassessing what they want in a home.
It is estimated approximately 700,000 people left London during the first lockdown and central London rents have suffered; Zoopla recently reported London rents were down 9.4% compared to this time last year. Our own research from Q1 revealed it as the only region where landlords report tenant demand is ‘weak’ rather than ‘strong’.
The adoption of home working has reduced the need to live close to centrally located workplaces and longer commutes are much more bearable if only necessary once or twice a week.
The result has been increased demand in suburban, rural and coastal areas, as well as established commuter towns. Paragon surveyors in southern regions reported tenants relocating from the Capital to locations such as Bournemouth and Bristol (in turn, this has led to Bristol landlords looking at property in nearby Gloucestershire where prices are a little lower).
However, I have always maintained that city centre markets would return and that seems to be playing out today.
The easing of lockdown restrictions sees a return of some of the things that make urban living attractive and, as the shopping centres and hospitality venues hit so hard by lockdown start to re-open, I believe more people will want to return.
Of course, affordability will also come into play and tenants will generally find London rental property more affordable than it was a year ago. Asking rents in almost two thirds of areas in London are lower than they were five years ago, compared to just 4% of areas with lower rents across the rest of Great Britain, according to Rightmove.
A journalist I recently spoke to had secured a flat just off Piccadilly Circus at a price that was unthinkable at the start of 2020. Looking forward, I believe that with urban living returning to favour, weak demand for city centre property will stiffen and rents will stabilise.
It is also worth noting that for many, city centres never lost their lustre, and landlords have certainly still been active in the London market.
Industry figures show that 2,000 buy-to-let loans for house purchase in the Capital were written in March, a number not seen since March 2016, and London accounted for 15% of all buy-to-let new purchase mortgages in the first quarter of the year, compared to 12.5% in the same period last year.
Our cities are transient, they ebb and flow as the population evolves. The events of the past year have amplified this, but the long-term fundamentals that underpin the attractiveness of living in a city centre remain and landlords clearly recognise that.