The increasing importance of the foreign student sector in Prime Central
London (PCL) has been confirmed today, as London Central Portfolio, which
specialises in investments in the Westminster and Kensington and Chelsea
boroughs of Central London, publishes its
results from their annual lettings audit.
Rental of apartments in PCL’s most exclusive neighbourhoods by finance
professionals, historically the mainstay of the market, stalled during the
credit crunch when employment in the sector fell by around one third. Taking up
the slack, the numbers of independently wealthy foreign student renters has been
increasing, with their share of the sector doubling from 12% to 29% between 2006
and 2012. This momentum has continued, seeing students representing the largest
number of new tenancy starts at a staggering 41% in the last 12 months. There
has been a corresponding decrease in new tenancy starts from finance
professionals, falling to 21%, the lowest on London Central Portfolio’s records.
According to LCP’s tenancy records, the rental sector in PCL has seen a marked
recovery with a 6.2% increase in rents for brand new flats in the last 3 months.
For re-lets, there has been an increase in rents, in line with the rate of
inflation, the first time the market has seen an increase in the last five
quarters. Again, students have made an important contribution to this rebound –
not only are there more of them, increasing the competition in the market – but
they have deeper pockets. Students are outbidding the corporate sector for
properties, paying £600 a week for a flat, 7% more than the average market rent
of £562.
“The increase in student renters in PCL should be no
surprise. Westminster houses three of the best universities in the world;
Imperial College, University College London and LSE (London School of Economics
and Political Science), and sees 100,000 students visiting a year. London has
become a magnet to these privately wealthy young adults who are looking for top
quality accommodation to go with their top drawer education. With 82% of
affluent Chinese families currently planning to send their children to study
overseas, this importance of this sectors looks to be going from strength to
strength," Naomi Heaton, CEO of London Central
Portfolio said.
She added: “Even as financial markets recover,
landlords are increasingly buying into the concept international student
tenants. Many have experienced a sophisticated lifestyle: they treat properties
with the same care are corporate tenants but the wealth underpinning them is
stronger. This means they can often outbid professional tenants, offering higher
rents, often a year upfront, as parents are keen to install their children in
the best, most secure homes” .
This however has led to an increased seasonality in the market. Some students
will only be renting for an academic year, which contributes to the higher level
of new tenancy starts ups by the student population. On the other hand, tenants
from the financial sector may extend their tenancies and stay put for a number
of years, which remains attractive to a landlord. However, there is always a
huge influx in enquiries during August and September for students, replenishing
the tenancies.
LCP’s audit also reveals a surprising return of British tenants to PCL as
economic sentiment and consumer confidence has bounced back. They have taken up
13% of properties in the last 12 months, the largest single nationality. British
corporate tenants from a range of employment sectors have been considering PCL
again. There are also a whole eclectic mix of British tenants such as
entrepreneurs and retired couples wanting to experience the London lights and
pensioners studying for their PHD. They have taken pole position from the
French, last year’s highest, as they fled from François
Hollande’s "punishing tax
regime." This year, as a whole, the most tenancy starts, 30%, have come from
Western Europe.
Further data compiled by LCP’s indicates that the market is shifting to smaller
one bedroom units, which have become the hardest working sector, achieving the
highest level of average weekly rents at £1.08 per square foot. Most tenants are
singles or duos. "This reflects both the fact that Central London is a young
“go-to” destination where 40% of residents are between 20 and 39 years old and
corporate high achievers come over as singles of couples. It also reflects the
growing importance of the international student community who generally come
over on their own and do not share unless they are with siblings."
“The dynamics of the private rented sector have clearly shifted in Central
London. To optimise their returns, it is important for landlords to recognise
and adapt to the changing landscape,” concludes Heaton.