Up and down the River Thames, renters hunting for bargains in high-end apartments are spoiled for choice.
Luxury residential construction in London has boomed in recent years. Now, newly completed homes are flooding the market, creating headaches for some landlords, and opportunities for renters.
"If you’re a tenant, there has never been more options," said Christian Barr, new homes manager at real estate broker MyLondonHome. "You can really afford to bargain."
With landlords on the back foot when negotiating, rents have been falling
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On the south side of the River Thames from London Bridge to Nine Elms, achieved rents were down 6.5% to £570 (US$740) per week from April to mid-June compared to same period a year ago, according to property data firm LonRes. Around the Canary Wharf business district, east of central London, rents were down 5.1% to £415 (US$538) per week.
What these two areas have in common: "Both have higher-than-average volumes of new supply coming onto the market," said Marcus Dixon, head of research at LonRes.
Developers continuing to build
The building boom in London kicked off during a period of soaring demand for mansions and luxury condominiums after the 2008 financial crisis. For foreigners, London real estate was seen as a safe place to invest in during turbulent times.
Sales prices rose 9.6% each year between 2010 and 2014, according to LonRes. Rising prices helped fuel further demand. As a result, property developers responded with more high-end projects.
The influx of properties has been especially apparent in Nine Elms, one of London’s biggest redevelopment areas along the Thames.
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The 561-acre site, about two miles west of Big Ben is being transformed from a former industrial area into a neighborhood. In addition to 20,000 new homes to be built over the next decade, plans call for offices, shops, leisure space, parks and a new tube station.
But right now "it doesn’t have those amenities," said Giles Barrett, senior lettings manager at broker Knight Frank. "This is going to impact rents."
However, developers are still investing in Nine Elms. Dalian Wanda, China’s largest property developer, earlier this month agreed to pay £470 million (US$602.9 million) for a 10-acre site in the area. Wanda already owned another site in Nine Elms.
But while investors might see long-term value, "as a tenant, you don’t care about an area being regenerated. You’re not necessarily going to benefit from that," Mr. Barr said.
Nine Elms is not the only area where a deluge of new flats is pushing rents lower. "The volume problem is London-wide," Mr. Barrett said.
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Rents have dropped 4.8% to £550 (US$714) per week from last year around Fulham and Earls Court, where there has also been an increased levels of new development, according to LonRes.
Now it’s typical for high-end flat hunters in London to start bargaining by knocking 10% to 12% off the asking price, a level that would have been scoffed at by brokers and landlords in years past, brokers said.
And rental bargains aren’t just found in the newest properties.
For example, at St. George Wharf, one of the first projects to be completed in Nine Elms, rents have been agreed up to 20% under the asking price, Mr. Barr at MyLondonHome said.
Across the Thames at Grosvenor Waterside, popular for its proximity to Sloane Square, there are 17 one-bedroom flats currently on the market, Mr. Giles at Knight Frank said.
"They’re all much of a muchness," he said. "You can see how this would be advantageous from a from tenant's perspective."
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Home prices also down
Alongside rents, homes prices in London’s most expensive neighborhoods are also down. Prime central London prices in May fell 6.6% from the year before, according to Knight Frank.
Uncertainty over Brexit, a shaky recent run in U.K. politics, and the impact of a revamped transaction tax called stamp duty are widely blamed.
The taxes have had a particularly strong impact, brokers said. In late 2014, the cost of buying homes valued at more than £937,000 (US$1.2 million) went up on a sliding scale, rising to a 12% tax on the portion of a sale over £1.5 million (US$1.9 million). In April 2016, an additional 3% was tacked on to the sale price of homes for foreign buyers or for those renting out their properties.
The weakness in the sales market has also increased the number of homes available to rent. Homeowners hoping prices will rise again are holding off on selling. In the meantime, they’re putting their homes on the rental market.
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There is optimism that the sales and rental markets will start to recover in the next 12 months. With prices falling and the general shortage of London housing, brokers expect a reduction in the oversupply.
In fact, the market is already reacting to lower rents. Foreigners, and especially students from overseas, still make up a significant portion of those looking to live in new builds. But other Londoners are starting to migrate to the areas, too.
"We’re seeing people come in from places like Clapham or Balham, where rents have risen to a point where they’re coming into line with what’s available on the river," Mr. Barr said.
"I don’t think the current weakness is going to be forever," he said. "But it’s certainly the now."