London rental market soars on back of city boom

London's rental market is starting to keep pace with sales, as demand for property in the capital continues to soar, according to key indicators published by Foxtons, London’s leading estate agent.

Since January, Foxtons have had 20% more applicants for rented property than this time last year. This demand is leading to rent rises and an increase in renewals.

Last year, growing demand pushed rents across London above inflation after years of below inflation rate increases and, over 2007, the company is anticipating average rent increases of up towards 10%. In particular hotspots, such as family homes in the best areas, Foxtons are expecting a 25% rise in rates compared to a year ago, given the present surge in demand.

Foxtons Director, Ed Phillips said: “Just like the sales market, the rental market is benefiting from the tremendous success of service businesses in London, particularly those in the financial sector. London has become an international business hub, drawing talent from around the world.

“Many of these people drawn to the capital will want to rent because of high house prices and the short term nature of their contracts.”

The market is strongest in the most expensive areas of London; Kensington, Chelsea, Notting Hill and Mayfair, where supply is tightly constrained and demand comes from the wealthy.

Phillips added: “There will be others who find themselves in the rental market because they have been unsuccessful in buying the home they want in the currently highly competitive sales market.”

“Traditionally the sales and rental markets ran out of step with each other, depending on which was in favour at the time. However the acute demand for property in London means both are particularly strong.”

Fuelled by demand, the rise in rental and property values and a relative shortage of alternative rental properties is also encouraging tenants to negotiate extensions to their current contracts. In the first quarter of 2006, 62% of Foxtons’ rental contracts were renewed. Indications this year are that the renewal rate will be close to 70%.

The figures on the current sales and rental markets feature in ‘area’, Foxtons’ new quality free magazine. Area has a circulation of over 950,000 across London.