Anya Martin has just spent weeks searching for a house that she and three friends could rent in Islington, north London. The 29-year-old charity research manager was looking for properties costing £3,000-£3,250 a month but struggled to get bookings to see them — when she could get through the door, she found herself in group viewings with several other prospective tenants.
“Lettings agents told us places were going under offer the same day they went online or were ‘fully subscribed for viewings’, something I’d never heard before,” she says. “There was a decent period during the first lockdown and summer last year where rents were much lower and many landlords seemed to be struggling to let. But it seems we are now back to the bad old days.”
Many will sympathise with Martin, who eventually had to admit defeat and accept a room in a house share with another group in a different area of the UK capital. Tenants in world cities such as London, New York and, to a lesser extent, San Francisco are finding the deluge of discounted rental properties that hit the market during the first coronavirus lockdowns is fast drying up — and the scramble for rental homes is back.
The UK capital is slowly coming back to life. Transport for London (TfL) says almost 4m people travelled on the Underground in the last week of September, compared with an average of 5.5m people a week before Covid-19. The number of Tube and bus journeys has increased every week since coronavirus restrictions were lifted in July; on Thursday September 30, 2.6m Tube journeys were made, the highest weekday total since the pandemic began.
Underground stations in the City are the busiest they have been since March 2020, TfL says, after September saw a widespread return to office working. JPMorgan says almost half of its staff are back in its London HQ, some full-time and others partly from home, while Goldman Sachs, whose chief executive David Solomon called homeworking an “aberration”, says its London office can return to full occupancy.
Flights from London City airport, which fell by 82 per cent in 2020, have been steadily increasing — last month, 120,000 passengers passed through it, the busiest month since the pandemic began, but still only 26 per cent of the passenger numbers recorded in September 2019.
Big discounts in the depths of lockdown
Before coronavirus restrictions were fully eased, a flood of flats, student digs and former short-let properties meant opportunistic renters could pick up incredible bargains, says Daniel Farey-Jones, a marketing journalist and keen observer of London’s property market.
“Slick Shoreditch two-beds were going at 20 per cent off the original asking rent, but dingy, unmodernised four-bed-no-lounge student flats around Euston were in freefall,” he says, adding that on one listing he counted more than 25 incremental price reductions over a two-month period. It was then taken off the market, its rental price cut 40 per cent.
“The turnround since winter has been as extreme as the decline, meaning the market looks back to apparent normality or even tighter,” he says. In London’s SE1 postcode, an area near the City that encompasses Waterloo and London Bridge, the number of rental discounts of 10 per cent or more hit 550 in late 2020, after being stable throughout 2019 at about 50. Today, he says, there are fewer than 25.
Demand for London rental properties in August was up almost 80 per cent on the average for 2017-19, according to the property portal Zoopla — it defines demand as active engagement with a property, such as emailing the agent or requesting a viewing. The flatsharing website Spareroom says “room wanted” adverts outnumber rooms available for only the third time in six years, with the spike in demand exacerbated by people coming into the market after moving out of parents’ houses or by two years’ worth of students looking for accommodation.
The crush means landlords are raising rents for existing tenants and new rentals are regularly attracting bidding wars. Estate agency Marsh & Parsons has an average of 31 people chasing each available letting, while Savills offices are having to remove properties from their website after an hour, such is the volume of inquiries they are receiving.
For one three-bedroom flat in Clapham, south-west London, Kinleigh Folkard & Hayward estate agency carried out 28 viewings in one evening and received 12 offers. The highest bidder was offering £450 a month more than the £2,500 asking price.
In central areas, competition is even fiercer. A two-bedroom flat in Bloomsbury has just rented for £3,683 a month after receiving four bids in excess of its £3,142 guide price within one hour of going live on the agent’s website. Another two-bedroom in the area priced at £3,467 a month — £433 a month more than the rent agreed pre-Covid — attracted 20 viewings in a day and was agreed at £4,225 a month.
Rob Hill, director at Greater London Properties, which let the Bloomsbury flats, says tenants are coming into his office “in tears on an almost daily basis” because they can’t find anything to rent. “Parents who are so desperate to find somewhere for their children studying at university to live have offered bribes to my team in order to let them know about properties first,” he adds.
The changing picture in the US
Demand for city living is also increasing in New York, which was devastated by the first Covid wave in spring 2020. However, recent caution over the spread of the Delta variant has slowed the return. While schools have reopened after a year of learning remotely and public-sector workers have been told to get back to their desks, many employers are delaying widespread office working — Amazon, for instance, a large employer in New York City, has pushed its US office reopening plans to January.
Although new lease signings in Manhattan in August rose to their highest for that month since at least 2008, according to Douglas Elliman real estate agency, the use of public transport in New York has not bounced back as much as in London. The Metropolitan Transport Authority says weekday subway ridership numbers for the final days in September were about half of pre-pandemic levels.
However, at weekends, the decline was less dramatic, down about a third compared with September 2019. Even as people have to show proof of at least one Covid-19 vaccination to dine indoors in restaurants, hit the gym or go to the cinema or a sports game, restaurants and bars in New York are packed with people who want to get on with their lives.
Joe, who works in IT and only wanted to give his first name, is one of them. He moved to a one-bedroom apartment in the East Village in July after more than a year of living with his parents in a Connecticut suburb. “I needed to get out of my folks’ place, where I was going stir crazy, and start enjoying the greatest city in the world again,” says Joe, 35.
After dropping to a median $2,750 a month in January this year, the lowest for a decade, Manhattan rents are rising again, according to real estate website StreetEasy. While the median rent in Manhattan is still significantly lower than pre-pandemic levels of about $3,500 a month, in some neighbourhoods — such as Flatiron, the East Village and the Financial District — rents are already exceeding pre-pandemic levels. In Flatiron, StreetEasy says, the median asking rent rose to $5,304 in July — the highest on record by more than $100. In September, the average rental price across the whole of New York City was up 4 per cent on March 2020, according to Apartment List.
New York’s comeback means it has now surpassed San Francisco as the most expensive rental market in the US, according to a report released in August by the rental listing company Zumper. It says the median rental price for a one-bedroom apartment in New York City is now $2,810, compared with $2,800 in San Francisco.
This is the first time the Big Apple has topped the rankings since Zumper began compiling the data in 2014 and demonstrates the extent to which the notoriously expensive Californian city is still playing catch-up. As many as 89,000 households have left San Francisco since the start of the pandemic, the local news site Public Comment estimates, and at their nadir rents for studio apartments plunged by almost a third.
With remote working still the norm among the tech companies that dominate the San Francisco Bay area, there hasn’t been the same rush back to the office and, although rents have begun rising, San Francisco and Oakland are the only US cities where they are still 10 per cent below pre-pandemic levels, according to Apartment List.
Indeed, rents for many properties are still down as much as 25 per cent, says Jackie Tom, the president of leasing agency Rentals in SF. “High-end homes, large and renovated units, and units with all amenities such as a home office and outdoor area have been higher in demand and are back to their pre-Covid rates, while older or average units that are small or outdated are still suffering.”
In London, average rents are still down 2.2 per cent year on year, according to Zoopla, but discounts are disappearing fast as demand for properties outstrips supply. Last month, 22,000 flats came on to the lettings market in inner London, according to the consultancy TwentyCi. Although this is similar to the number of new listings in September 2018 and 2019, last month 65 per cent of available flats found a tenant, up from 55 per cent in September 2018 and 60 per cent in September 2019.
Does London have a landlord shortage?
Many tenants who managed to negotiate hefty discounts earlier in the year typically signed rental contracts of more than 12 months to lock in their low prices, which is curtailing supply. So too is the fact that many landlords in the capital have decided to sell up. Some 13 per cent of London properties currently listed for sale have been rented out in the past three years, up from only 3 per cent two years ago, according to Zoopla.
Some investors sold in order to take advantage of the frenetic sales market in the first half of the year caused by the stamp duty holiday, says Tom Bill, head of UK residential research at Knight Frank. Others have been put off by tax and regulatory changes, plus the stress caused by Covid, when landlords had to accept lower rents or risk void periods.
Adding to the problem is the fact fewer landlords are buying in London than they did before recent tax changes: a 3 per cent stamp duty surcharge on additional home purchases in April 2016 and the phasing out of mortgage interest tax relief that began the following year. Hamptons estate agency says that only 8 per cent of London properties sold in the third quarter of the year were bought by an investor, down from 24 per cent at the end of 2014.
The buy-to-let sector has professionalised, which makes it hard to crack into if you’re a new, small-scale landlord. Increasing numbers of investors are putting their properties into companies — there were 10,388 buy-to-let incorporations in London between January and August, more than double the figure seen over the same period in 2018, Hamptons says — and build-to-rent property listings have trebled in the past five years.
Ayesha Ofori, property investment specialist and founder of PropElle Network, which helps women invest in property, is wary of the capital right now. “If small landlords factor in the removal of lucrative tax breaks and limited capital appreciation — 1.7 per cent annualised over the past three years — many may question the point of staying in,” says Ofori, who believes places such as Liverpool and Leicester offer far better rental yield and capital appreciation prospects in the near term.
London landlord Tom Parker, 52, would be inclined to agree — even though he has just managed to rent out his three-bedroom penthouse flat in St Katharine Docks, near the Tower of London, for the asking price of £2,500 a week through Cluttons estate agency.
“We put our flat on the market in June and at first there it was quite worrying as we had barely any viewings,” says Parker, who works in banking. “At the end of July they started to pick up and in August things really kicked off. We ended up with three interested parties.”
Although he is pleased the rental market in the capital has picked up, Parker points out that there is little yield after taxes. “On top of that, market volatility is making capital values uncertain,” he adds. “I would not advise becoming a landlord right now.”
Source Financial Times