The Negotiator - January 2008
A buoyant market
When house sales slow, lettings rise. London lettings specialist Susan Fitz-Gibbon agrees that the number of buyers who are sitting it out is just one factor boosting the rentals business.
The lettings market is exceptionally strong at the moment. The corporate market is active and individuals are seeking to keep their options open until they have a clear indication of what is happening with interest rates. Home Information Packs, and with the economy generally.
As specialists in the residential lettings and property management fields, the sales market is always of interest to us, given the knock-on effect it has on the lettings market.
As the sales market has eased, the lettings market in the areas we cover has been buoyant. This year is set to be exciting and busy with a good supply of serious tenants and consistent growth.
HIPs have helped us
The introduction of HIPs has clearly had an impact on the sales market and caused a slowdown.
As I am hearing, there is a lot of uncertainty surrounding HIPs and the energy efficiency report, including doubts about what it achieves for the purchaser and the cost implications for the vendor. But HIPs have been good for us: as a result, activity in the lettings market has increased over the last nine to ten months.
We've seen owner-occupiers selling their properties earlier than they might have done, to avoid the HIP. They took the decision to get out of the market, and watch it carefully before either purchasing again or continuing to rent.
Those who wish to come back in to the market are surrendering their tenancies in order to purchase. This in turn is releasing properties for the corporate market and benefiting other owner-occupiers who are becoming tenants, and so the cycle remains strong.
Corporate relocating tenants continue to dominate the market for my own firm, and last year's figures were up on the previous year, with over 75% of tenancies extending for a further year and rent increases also up on previous years.
Indeed, the demand is so high for good quality properties that companies understand that they need to hang on to properties they are currently renting for new staff, even if the property has to stand empty for a while.
Viewings are taking place earlier than ever, with some tenancies secured as early as for and six months in advance.
The internet remains a huge source of business. We are receiving offers on properties that have not been physically viewed but fit the criteria on the web and to avoid losing the property, offers are coming in over the phone. This is not to be encouraged and indeed we will not operate this way, but it is a sure sign of high demand.
Rents rising faster than RPI
Rent increases have historically been in line with the Retail Price Index, with a minimum increase of 3%. However, this is too low in the current market and we have been negotiating far higher figures. On one property, we negotiated a 22% increase.
We are confident that the rental values will continue to increase in the months and that the lettings market has not reached its peak. As it continues in its growth, tenants are becoming more discerning and increasingly more likely to expect the best in presentation and designer-style furnishings.
This trend is coupled with increased demand for interior design and contemporary furnishings, so we have responded by offering a home furnishing service.
People have increasingly less and less time to source furniture, so we do it for them. We either rent the furniture or buy in a style to appeal to a wide range at a sensible cost.
So what of the future? The early part of any year is always busy with the relocation of corporate personnel but due to uncertainty in the UK sales market, tenant levels in 2008 will continue to be bolstered by home-owners who have sold their properties and will not buy at a time when they believe house prices still have a way to fall Ð up to 35%, if you believe some commentators. And huge headlines, such as the one that recently appeared in the Telegraph, ÒBrace yourself for a crashÓ do not inspire confidence.
Rental lifestyle
Indeed we have seen this sort of thing happen before and the effect has been to change the whole image of lettings. As a nation, property ownership is no longer the holygrail and we have become more comfortable with the concept of renting and acknowledge the value of flexibility.
As more people choose to rent we'll see further rental increases. This will not be before time. As rental figures always lag any increase in the sales market.
This year, we will also see new legislation in the form of Energy Performance Certificates for all rental properties. This is due to be implemented from October, so all agents will need to be prepared for this.
There is much talk about the demise of the buy-to-let craze. But we are not finding this the case, and indeed, there is plenty of good reason why landlords should stay in the market. We work closely with developers and on one development we are involved with, over 60% of the building has been sold to investor landlords. We are marketing and letting the units successfully to tenants; good news all round.
Susan Fitz-Gibbon has been in the lettings industry for 27 years and established Fitz-Gibbon 20 years ago.