The latest rental market reports have begun to show that average rents across the whole of London are falling. Data from tenant referencing agency Homelet, shows average London rents were 1.2% lower in April 2017 than they were a year earlier. That’s the first time their research has shown an annual drop, since 2009.

Some commentators are putting the blame for this squarely on the shoulders of Brexit and business-related worries. But, analysis of data on newly built London apartments, suggests it isn’t the only, or even the main reason.

“There’s no doubt that Brexit is playing a part in people’s willingness to pay higher rents in London,” said Guaranteed Rent Specialists, Assetgrove. “However, there are other factors at play too, with the supply of new apartments chief among them.”

London property management firm London Central Portfolio, (LCP) agrees. Its research shows the supply of new apartments has risen by 22,000 in the three months of 2017. And, not all of them have been let immediately, or at the advertised rent level.

Specifically, the data points to new build activity south of the iconic river Thames – in Battersea through to Nine Elms – that’s pushing London rents lower.

South London New Builds

Post codes SE11, SW11 and SW8 have experienced a quick succession of new-build completions. But, that fast pace of work appears to be enough to satisfy current levels of demand for the new homes. It’s also been a bit of a boon to tenants, who are more able to make a lower rental offer and even walk away if they don’t like the price, or apartment.

The data shows:

• 1% increase in south London rental properties.
• Number of rental properties that have actually been let in south London down 14.8%.
• A 6% decline in the level of advertised rents in the first quarter of 2017 versus 2016.
• Achieved rents for the area 2.8% lower than the final three months of 2016.

“The numbers clearly show that right now, demand for new build rental homes in the Battersea area has been met,” said Eden Harper, estate agent in Battersea. “However, it’s safe to say this isn’t the case all over London, which confirms Brexit is far from the only detail that affects the rental market.”

Popular Period Properties

Elsewhere in London, landlords aren’t seeing the same market dynamics. Where the number of new builds has been lower than south of the river and there’s a good supply of period properties, activity remains robust.

Demand for central London period properties hasn’t fallen and nor have rents paid for them. In fact, they’ve risen 1.5% and the number of properties that have been rented has risen 2.5%. At the same time, new build stock levels have risen by just 5%, almost one sixth of the increase seen around Battersea.

This, more than anything else, underscores that the central London rental market is thriving. Even as demand elsewhere has slowed.

“Period properties are always popular, particular where the stock is in a good location and well-maintained,” said Lawsons & Daughters, estate agent in Fulham. “London’s rental market is mimicking the sales market – the right properties in the best locations remain popular while potential tenants of properties a little further out are able to be more selective and bargain harder, too.”

Power Shifts from Landlords to Tenants

The divergence between the fortunes of Central London period properties and new builds south of the river, is clear. However, the overall trend across London still remains one where tenants have more bargaining power than they did. As tenants have more options, landlords can no longer demand the rent of their choosing.

With most BTL landlords playing a long-term game, this change in rental market dynamics shouldn’t harm them. Although, if rents move too low and stay there too long, that could change. But, the beauty of property is that it can always be sold if the market doesn’t recover.

It’s likely there will be a few more years of uncertainty and rises and falls in rental market activity. Looking beyond Brexit and the current influx of new build completions, the population is still set to grow and London will always be popular. That should mean most landlord’s investments are safe, with demand expected to recover – eventually.

Guest post provided by Property Division.