Savills claim rise in prime buy to let could impact on rental returns

The levels of buy to let property entering the prime London market from overseas buyers could dampen rental returns, Savills has claimed.

A spike in prime buy to let property, including substantial new builds purchased by overseas buyers, was identified in the firm’s ‘Market in Minutes’, Prime Lettings Q3 2014 report.

This is boosting the availability of property in the prime capital market, with the current situation a result of supply issues rather than demand, according to the research.

Lucian Cook, director of residential research said the new buy to let options are “adding to the pool of rental options available for tenants”.

The highest annual rental growth in prime London has been seen in the north and east of the capital, with young professional sharers, couples and overseas students a driving force.

“As is typical at this time of year, when the university year begins, wealthy international students drove the demand most evidently in prime central London due to the proximity of world class universities,” added Mr Cook.

Rental growth averaged 1.3 per cent during the past year across London’s commuter belt, with the strongest growth noted where commutes to central areas take around an hour.

The prime markets saw growth of 1.4 per cent with one and two-bedroom flats in particular demand, while similar growth exists for prime properties in the commuter zone.

However, a significant gap in average value per square foot of floor space exists as the cost of prime central London floor space is double that of the commuter zone.

The report states that younger generations are driving prime rental growth and suggests that landlords may have to adapt in order to compete.

Three-bedroom properties have seen strong growth across the prime rental market since 2008, with average rental values around three per cent above their peak.

Savills also suggests that the five-year outlook for the prime sector is excellent, based on several leading factors.

“As demand for rental properties continues to grow due to affordability constraints in the housing market, our forecast for rental growth over the next five years is strong,” stated the report.

“The strengthening UK economic recovery and expanding emerging sectors such as technology and telecommunications will continue to underpin demand for prime rental property.”

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