If you’re planning your move to London, after procuring a job and visa, your next critical task is to find a flat to let in London. My esteemed London Relocation colleague Mat Paramor (our Head of Corporate Services—he’s the guy you want to talk to if you need to transfer your company’s employees to London!) has passed on the latest London property market trends and statistics, so I thought I’d distill the gist of it down for you to enhance your grasp on the current climate here.

London Apartment Supply

As of last summer, London encountered a serious shortage in available apartments for rent due to a few factors:

1) Landlords have increasingly opted to sell rather than let their London flats;
2) The increase in required mortgage deposits has discouraged renters from becoming buyers, so a generally older demographic that would have been looking to purchase a home have remained within the rental pool; and,
3) As the rental market becomes increasingly competitive, there’s less turnover in tenancy as renters renew their leases rather than take their chances in that atmosphere.

This shortage is particularly noted in the London neighborhoods consistently favored by expats: Kensington, Chelsea, Notting Hill, and Hampstead.

London Apartment Rent

How does this impact you if you’re relocating and need to rent a flat? Time now for an Econ 101 lesson: Supply & Demand and their impact on Price. The impact of scarcity in supply is clear as far as being more limited in your options at your price level. It also means expectations of where to set that price level may need to adjust:

If you’re not familiar with the economic concept of supply and demand, I’ll break it down. Basically, when supply of a product decreases, the demand for it increases. So if there are fewer available London apartments out there, that many more people will be clamoring over each one of them. This makes it very easy for landlords to then place a premium on their property for rent, to take advantage of the increase in demand. If people out there will pay it, why not charge it, right? Now, generally, as the price of a product increases, demand for that product goes down—who wants to pay more for something, you know? So the graph at the left shows us the theoretical state of equilibrium when price is aligned with the demand for a product as well as the available supply of it.

 

I’ve now manipulated the graph above to produce this next one, which shows how the market seeks out a new level of equilibrium when that Supply line is shifted to the left (to reflect the decreased quantity of available properties in London) and Demand concurrently shifts to the right (to reflect the increasing number of tenants looking to rent in London). As you see, those two lines now intersect at a higher price-point.

The lettings agencies with whom we collaborate are forecasting average rent increases of 7-8% in prime locations for 2011 over last year (whereas sales are predicted to rise only about 1% in price). Stick around for my follow-up post on what you can do to conquer this market and rent an apartment that you’ll love to live in after your London UK move.