What will happen in London’s property investment market in 2023?

With average rents already 20% higher than last year, forecasts of further rental growth this year, and soaring demand among tenants for suitable property, currently, signs are positive for investors in the London market.

Related topics:  Landlords,  London,  Investment,  Lettings
Property | Reporter
21st March 2023
London 7

London-based estate agency, JOHNS&CO, looks at what has happened in the capital's property investment market since the pandemic-induced exodus of tenants a few years ago.

Matt Johnson, Area Director at JOHNS&CO, said: “Coming into this year, we expected to see buyer demand dampened by the rise in interest rates, the cost of living crisis, and changes to political leadership in Q4. The reality is that we have been exceptionally busy, with 100% more new offers year on year, and a 20% increase in agreed deals.

“This has been contrary to what is currently being reported about the market overall, as the London property market has shown its resilience during times of economic pressure.”

Data from Q1 of this year has revealed buyer demand to be 70% higher than the five-year average, with the average pipeline of listed-to-sale shortened to just three weeks.

Matt commented: “What we are seeing is growing investment prosperity as mortgage rates rise, property sale prices remain static, and rents continue to increase. Meanwhile, rental growth has begun to outpace property prices, creating an increasingly positive outlook for the London rental market.”

For investors, JOHNS&CO advises that the rental yield of a property can provide a good indication of how different properties are likely to perform, allowing for a more informed comparison of investment opportunities.

During the pandemic, London’s property market was significantly impacted after a huge decline in demand for rental homes in the nation’s capital, which in turn caused rental values to fall, and rental yields to drop below 2%.

Yet, over the past few years, the capital’s rental yields have recovered to an average of 4.2%, as transactions have risen while supply has remained low.

Matt observed: “Increasingly, the rental market is stabilising after the effects of the pandemic and we are seeing the return of renters looking to move to the city in search of work.

“From stabilising rental yields to growing tenant demand, this is a prime time for investors to consider investment opportunities within London and take advantage of this strengthening rental climate.”

Using current data, the firm has identified the boroughs in London where rental yields have prospered.

Matt continued: “Despite some areas of London having some of the highest property prices in the UK, our data has identified that there are far more lucrative investment opportunities available in the capital for investors looking to expand their portfolios.”

When considering an investment opportunity, JOHNS&CO advise evaluating if the property has the potential to grow in value, if tenants are reliable, and if the location has appropriate amenities.

Matt continued: “Alongside strengthening demand and rental yields, we have also seen rental renewal rates remain consistent, with the current renewal rate at 62%, which is an increase from 2022.”

“To that, void periods remain extremely low, at approximately four days due to exceptionally high tenant demand, illustrating that despite the rising cost of rent, landlords are still seeing a good return on investment.”

“Overall, while the property market can be unpredictable, from this data we are seeing that the London investment market is looking increasingly prosperous for 2023.”

He concluded: “While some demographics are leaving London for more rural areas, the job and leisure opportunities available means that economic migration to London will always be present, hence why buying property in London will remain a good long-term investment opportunity.”

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