Prime Central London (PCL) is seeing the rise of the micro-apartment, according to new research, as squeezed accommodation budgets have seen singles and couples opting for location and convenience over size.
According to statistics, analysed by London Central Portfolio (LCP), there is increasing demand for smaller properties which offer an affordable option for tenants who wish to be centrally located near their place of employment or study. In a similar dynamic to PCL’s sales market, where luxury properties have suffered most in the face of the changing tax landscape and Brexit uncertainty, PCL’s rental market is also notably fragmenting by size and price band.
Over the last 12 months, 42% of properties let have been studios or one bedrooms by tenants prioritising lifestyle and transport links over square footage. On the other hand, demand has been notably slower for larger rental properties as families consider less central options, offering greater value and more space. This has also been demonstrated in the sales market with a 68% increase in the rate of 30 – 39 year olds leaving London, compared with five years ago, according to Savills.
Naomi Heaton, CEO of LCP, said, “From a rental market perspective, a dynamic which was notable during the Credit Crunch is again apparent as corporates cut their housing budgets. Tenants are now looking for more affordable options, choosing central locations and an easy commute to work or university. This is reinforcing the new trend for the globally mobile to seek highly specified micro-apartments, with well optimised space, whilst families tend to opt for more suburban locations where smaller budgets can stretch to larger homes and ideally the possibility of outside space. Indeed, significant discounts to asking rent of over 10% for the most expensive, luxury rentals are now being reported.”
Whilst all of PCL’s rental sectors have seen discounting as tenants take advantage of landlord uncertainty and increased levels of stock, this has been much less marked for smaller units, according to LCP. Studio and one bedroom units have recorded discounts to asking rents of 5.2% and 6.2% respectively, which increases by size to 7.8%, 9.9% and 11.2% for two, three and three + bedroom units respectively.
It is also taking much less time to find tenants for smaller micro-apartments. Over the last year, the average marketing times for two-bedroom properties has reached 85 days, increasing to 98 days for three bedroom and a significant 119 days for three + bedroom units. This is 42% longer on average than for one-bedroom or studio units, which are seeing a much greater level of demand from the single tenant and couples that the PCL market attracts. For LCP’s portfolio, 63.9% of tenants are now single dwellers.
Another indication of the trend in PCL towards micro-apartments is the number of properties being rented by price band. Over 1/3 of properties let (36.6%) have rents under £500 per week whilst only 3.2% of units have been rented over £2,000 per week. 70% of units being let now have rents of under £750 per week.
Tenants are also increasingly seeking newly refurbished, highly specified properties which match their aspirational lifestyles. Analysis of LCP’s rental portfolio has shown that newly refurbished one bedroom units continue to show the most robust rental increases, posting rents above projection for the last five years. Over the last 12 months, these units have recorded average rental increases of 6.9%, compared with a 1.9% fall for older stock. Once again demonstrating the trend towards smaller units, newly refurbished two bedroom properties have demonstrate just a 1.5% increase with older properties seeing rent decreases of 3.5%.
“It is very clear that tenants are now looking for smaller units, which offer more affordable prices, but want top quality properties with transport links and amenities on their doorstep. As the popularity of micro-apartments increases, it may perhaps be time for the Government to review their minimum space standards, introduced in 2014 and cater for what the market really demands. This will not only offer a more affordable product for London’s working and student population but by optimising the use of small spaces provide a greater volume of housing stock at a time of a critical UK housing crisis,” concluded Heaton.