Uncertainty in global markets is slowing institutional interest in the UK capital, stifling yield growth for investors.
- Rents in central London suffered their biggest fall in two years in October
- Declining oil prices and the fallout from China’s stock market crash have forced institutional investors to reduce costs, with London property an expense many cannot currently prioritise
- A city offering greater affordability, Manchester is expecting 10,000 new PRS units to be built over the next few years, fuelled by investment from pension funds and insurance companies
Is the prime central London property market edging ever closer to the end of its growth cycle?
Rental values in the sector suffered their steepest decline for two years last month, falling by 0.5% according to Knight Frank’s latest rental report. A year of two halves, annual rental value growth has slowed in the market to 1.5%, despite a peak of 4.2% just five months previous.
Tom Bill, Head of London Residential Research at Knight Frank, points to uplifts to property taxation which makes it even more costly to acquire prime real estate in London. However, he believes that uncertainty in the world’s equities markets has driven the slump since the summer.
“The uncertainty has centred on events in China, which has caused companies to curb relocation budgets and recruitment plans. The falling oil price has also impacted sentiment among energy companies.”
In September, the number of tenancies agreed was 12% lower than the same month in 2014. With yields and tenant demand sliding, institutional investors from across the world are looking to reduce costs in the face of poor performance in financial markets.
Away from the soaring costs of the London property market, institutional investment in Manchester’s private rented sector (PRS) has been on the rise in 2015. Around 10,000 new PRS are expected in the north-west city in the coming years, thanks to investment from pension funds, insurance companies and private businesses.
Huge demand for rental accommodation is currently being met with one of the lowest levels of housing stock in the country. When coupled with the prospect of billions of pounds worth of economic investment under the Northern Powerhouse, institutions have been quick to see the investment potential in Manchester.