Students beat corporate tenants in ‘sprint for stock'
Companies planning to relocate staff to London need to keep their options open due to supply shortages
3 minutes to read
Low supply and high demand mean there is a sprint for stock in the London lettings market, as we flagged last month.
Students and corporate tenants are two of the largest groups competing for what available properties there are.
In addition to the fact many students are actively searching in the capital, others are happy to agree a tenancy quickly based on a video call.
Companies relocating staff to London understandably face more paperwork, due diligence and rigidity around cost.
It means there was only ever going to be one winner in this particular race.
“Companies are often left feeling frustrated because they are a step behind students, who are able to take tenancies much more quickly,” said John Humphris, head of relocation and corporate services at Knight Frank. “The situation has become more acute as corporate demand has returned to its pre-pandemic level.”
This particular milestone was reached in September, as the below chart shows. Corporate enquiries come from companies of all sizes looking to relocate staff to the UK across a range of sectors including finance, tech and energy and the recent uptick is largely due to the relaxation of international travel rules in the UK.
It means companies are having to widen search areas, look at alternative accommodation or, in some cases, delay moves until next year, according to Sacha Hawkins, head of the relocation agent team and diplomatic desk at Knight Frank.
“Tenants who were previously looking in Marylebone are now searching in areas slightly further out like Belsize Park,” said Sacha. “The requirement for a walk to work has become a walk to a tube station.”
Apartments to rent around London’s two main financial districts are in even tighter supply, a trend we have previously explored.
It is all happening against the backdrop of high levels of activity in the London lettings market.
The number of tenancies started in September was the highest figure in ten years.
Meanwhile, the number of market evaluation appraisals, a leading indicator of supply, has fallen by a quarter since the start of this year. Supply has dropped as the flow of short-let properties onto the long-let market has dried up as staycation rules have been relaxed. In other cases, would-be landlords sold to capitalise on surging demand in the sales market due to the stamp duty holiday.
The result has been to push rental values higher. Average rental values rose on a quarterly basis by the largest amount in a decade in prime central (+2.8%) and prime outer London (+2.6%) in September.
"In addition to widening search areas, companies are having to put workers in serviced apartments on a short-let basis as a temporary fix. Such accommodation has a premium of around 50% compared to the long-let market", said Sacha.
“Companies are not generally willing to get into a bidding war for a property, even if they need to find a short-let that is at a higher price on a temporary basis,” Sacha said. “Alternatively workers are moving into hotels, many of which have their own corporate rates.”
Things may get easier for companies over the next several months as student demand recedes.
“There will be a slowdown between now and January as the Universities are up and running,” said John. “There is a window of opportunity for companies to act.”
The imbalance presents developers with an opportunity, added John. “We might see more new-build stock pivot towards the lettings market to meet such strong demand.”