How to Beat the London Rental Growth Slowdown

The ONS recently reports a 0.2% decrease in residential rental values across London in the 12 months to June 2018. This was the second consecutive month London rent prices have fallen over the course of a year since September 2012 - that’s almost eight years ago.

This represents a possibly significant turning point in the London rental market. Property industry economic cycles - the range of peaks and troughs in factors such as rent values or house prices - typically occur over an average period of 8 years according to the Royal Institute of Chartered Surveyors.

Simple economics tells us that price decreases occur due to a downturn in demand and/or an abundance of supply. This poses a double threat to landlords - potentially falling rental yields coupled with longer vacancy periods.

Whilst nobody can be sure what the statistics will show at the next ONS release, many landlords are becoming nervous about their investments in the London market, with the prospect of decreasing yields becoming a genuine possibility.

Fortunately there are strategies, some well established and some born out of innovation, for dealing with such scenarios in the most profitable way.

 

Guarantee your rental income
An increasing number of London letting agencies are offering guaranteed rent for Landlords, much like London-based likemindedliving.co.uk, who also offer 0% commission and a fully let property within 21 days.

Unlike traditional agents, they guarantee rent at the rate appraised during the initial valuation, regardless of market turbulence or occupancy rates, therefore protecting against the market environment of decreasing rent values and increasing uncertainty.

This is the ideal choice for any Landlord who wants to protect their existing investment, rather than exit and seek another opportunity, which is the focus of the following two options.

 

Divestment
With rental prices in England as a whole still increasing at a rate of 1%, with particular geographic areas of growth well above this, those UK landlords who choose to bet against the London market entirely may look to diversify their portfolio to up-and-coming regions.

The East Midlands, for example, reported rental growth of 2.8% over the year. Meanwhile 2.1% was achieved in the South West, and 1.9% in the East of England. In fact, every region of the UK outside of London included within the ONS's statistics recorded a growth in rental prices over the 12 month period.

International investors may look to other major cities, with many corners of the globe able to offer better returns on their investments too.

 

Diversification
Those focussed solely on London, on top of guaranteeing their income, may seek to diversify their real estate investments away from residential during the rental growth slowdown.

The woes of the high street are a sure sign against retail or restaurant space, but the high street as a whole offers opportunities for alternative commercial uses. The gym sector is still expanding, with the major players seeking to establish themselves in all major conurbations; whilst experience-based activities are growing in take-up of high street real estate, such as the newly popularised escape room.