Booming tenant demand in right areas is good news for investors

London continues to be a huge draw for professionals looking to rent, and that means there are booming areas for investors to buy into.

Hotspots include Canada Water and its surrounds, and London City/Docklands, where rental yields are around 5% or more. The Oval area continues to be sought after, with some properties offering up to 6% yields.

Buying in these areas also results in capital appreciation for landlords – despite the recent slowdown in property price rises, over the medium term they will continue to climb, say forecasts.

Rising rents

Data from the greater London authority shows that rents increased in line with wage inflation and in prime investment areas, demand was particularly strong.

At the same time, the availability of rental properties dropped by a half to a third across central London and surrounding areas. This mismatch in supply and demand has inevitably led to an increase in rents.

One unreported phenomenon is that at renewal landlords and tenants out of respect for their long term relationships are negotiating a middle ground with the tenant enjoying certainty and the landlord through continuity, the higher net yields associated with long term tenancies.

Industry commentators expect more rent rises of at least 5% per year over the next four years, but this could be higher in the right areas with the right properties.

According to Rightmove, London rents hit new heights of £2,480 per month, and in inner London they surpassed £3,000 for the first time.

Rising demand

Figures from Rightmove reveal that enquiries for rental homes in central London were up 23% between the start of 2022 and the start of 2023.

There are around 7 sets of potential tenants chasing every available property.

In the areas of the City and Docklands, and just across the Thames in Canada Water, there continues to be an influx of workers going back to offices.

Great transport links via the Overground, Tube and Docklands Light Railway take them to jobs in fintech, proptech, AI and banking.

Further demand comes from students – particularly post-graduate learners - many from outside the UK, as colleges and universities move away from online learning and return to face-to-face teaching.

In an interesting development, more renters are now looking to sign longer agreements of two or even three years – allowing landlords greater continuity of tenancy and giving them the opportunity to form stronger relationships with their longer-term tenants.

Heading slightly south-west, Oval and Kennington continue to benefit from workers who left London during the pandemic but are now lured back to the capital.

Families in particular are attracted to the area’s mix of green spaces, good schools, large supermarkets, and small independent pubs and restaurants.

House prices rise will continue medium-term

Investors spooked by talk of slowdown in the housing market can take heart from the latest forecasts from the Office for Budget Responsibility.

Analysts there predict that although there may be falls this year, by 2027 the market will have recovered and will continue to rise, though more modestly than before.

Most investors are in it for the medium to long term and they can only benefit from this trend.

Savvy investors

Investors of all kinds are increasingly looking for modern, purpose-built flats which are energy-efficient.

Much of the newer housing stock in Docklands and Canada Water, and developments in the Oval, meet these criteria. Not only attractive to tenants, they will attract buyers should a landlord later decide to exit the market.

These areas also boast a wealth of attractive period homes appealing to families.

If it’s the rental yields that attracts, Ludlow Thomson operates in areas where many properties are not at the eye-wateringly high prices seen in some London postcodes.

A combination of reasonable prices and high rental demand produces the best yields.

Here at Ludlow Thomson we can help investors on their property journey and manage homes on their behalf.

Why not contact us to find out more? We have vast experience of finding the right property and attracting the best possible rents.