Rental growth has overtaken yield compression as the key driver of total investor returns in London in the first half of this year.
An analysis of the city’s 20 key submarkets by Levy Real Estate and MSCI found that rents rose by 4.2% across the city from January to June 2015, with increases of as much as 12.1% in Victoria, SW1, and 10% in Covent Garden, WC2.
Levy Real Estate investment partner Simon Heilpern said the weight of capital seeking to enter London had driven returns for the past five years.
“However, we are now seeing a sea change. There is still a considerable weight of money looking to invest in the capital but rental growth is playing an increasingly important part. If the level of return performance that we’ve seen in recent years is to be maintained, then rising rents are the key.”
Core markets in the City and West End posted total returns of 10.1% and 9.2% respectively but were outperformed by Midtown and the South Bank, which both achieved 11.3%, according to Farebrother and Union Street Partners’ analysis of the data.
