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The rental rates in London are still rising and this opens an incredible opportunity for property owners and landlords. But it’s not as simple as raising rental rates to increase your property’s income potential.
You need to step back and look at the bigger picture to position your property for long-term gains. Although the average rental rate is rising, the government is implementing new regulations that could affect the future income potential of the private rental market.
In this article, you’ll learn more about the effects of the rising rent in London and how you can position your portfolio to maximise the benefits you can gain from it.
4 Possible Scenarios from the Rising Rent in London
The average rental price in the UK’s private rental sector increased by 8.7% from October 2023 to October 2024. This increase is even higher than the 8.4% rise from September 2023 to September 2024.
This rental rate inflation is the highest in London with 10.4% (during the past 12 months to October 2024).
What does this mean for London property owners and landlords? 4 possible scenarios could happen if the rental prices continue to rise.
Higher Income Potential
The most obvious effect of the rising rental prices is the higher income potential for private rental properties. In London, there’s a high demand for rental properties coming from business professionals, students and international tenants. Since the housing supply in the city is still low, it’s putting pressure on rental prices.
Observe the housing supply in the coming months to see if there are new building developments. This will give you an idea if the rental prices will continue to rise.
Review and adjust your rental prices to maximise the profit potential of your properties. If you’ve recently improved your unit, you can use that to justify setting higher rates. For instance, you just upgraded the WiFi connection or you had the unit repainted. These can justify a higher rental price – as long as it’s still within the market average.
Opportunities to Improve Occupancy Rates
Since the rising rent is caused by the high demand and low housing supply, it also presents an opportunity for you to improve occupancy rates. Tenants, in particular, will be looking to secure long-term accommodations. If your property is in a desirable location, this will help you keep vacancy rates low.
Of course, there are things you can do to maximise occupancy rates and in effect, increase the property’s profitability. You can increase the appeal of your rental property by offering flexible lease options. Keep it within 6 months so you and the tenant can renegotiate the lease agreement. In case the rental prices keep rising, you can grab the opportunity to raise your rates as well.
The flexible lease option will also make your property available to a broader market. If you can offer the property as a shortlet, you can attract business travellers and tourists. While this may present property management challenges, there’s an option to partner with a property management company like City Relay. Their industry expertise brings marketing and maintenance services that will lead to maximum occupancy rates.
With your property constantly occupied, proactive maintenance is needed to keep the premium standard of the rental unit high. If the property is well-maintained, you can command higher rental rates to increase profitability.
Greater Need to Meet Tenant Expectations
Although tenants or guests can’t do anything about the rising rental prices, they will have greater expectations for high-priced properties. They’ll naturally want a better value for their money so they’ll look for modern, energy-efficient and functional homes.
To stay competitive, adhere to the Decent Home Standard and make sure you comply with energy-efficiency requirements. This will not just improve the quality of the rental property, it will also help you avoid complaints and penalties.
You can also upgrade old appliances or add decors. Even a paint job will improve the premium quality of the property.
Of course, the improvements don’t always have to be limited to the property. You can improve communication, set up a clear process for repairs, offer amenities, etc. Not only will this improve your relationship with your current tenants and make them stay longer, but it will also help you build a positive reputation. You’ll be known for providing high-quality rentals – which will attract responsible and reliable tenants in the future.
Expect Possible Market Corrections
If the rental rates continue to rise, you can expect market corrections like economic shifts, interest rate changes or government regulations to happen. One example is the Renters’ Rights Bill which is expected to pass into law by 2025. This particular bill clearly defines the Decent Homes Standards, Rent Pricing Strategy, etc.
You need to pay attention to these corrections so you can prepare your property to comply. You can also change your letting strategy. If you want to stabilise your rental cash flow, prioritise consistent occupancy through long-term leases. If you want maximum income potential, go for flexible letting to mix short-term with long-term rentals.
In the end, you have to commit to keeping yourself informed. Monitor market trends and policy changes. Being updated on recent events will help you stay one step ahead so you can adjust your strategy accordingly.
Take Advantage of the Higher Rental Rate in London
The high rental rate in London presents an incredible opportunity for property owners and landlords like you to boost their property’s income potential and reduce vacancy rates. At the same time, it also allows you to position your property as a premium rental.
Taking advantage of this is not just about adjusting your rate. It requires thoughtful consideration of your property’s value while balancing profitability and affordability. This requires enhancing tenant satisfaction and keeping an eye on market changes to capitalise on current trends. This won’t just increase revenues, it will also lead to a resilient and thriving portfolio.
When it comes to balancing profitability and tenant value, consider partnering with expert property management companies like City Relay. We can help you adjust to the rising rent in London so it ensures long-term success despite the competitive market in London. Contact City Relay so we can elevate your property to maximise its performance and earning potential.
