Japanese corporates strict on rent increases in London’s ‘hot’ rental market

Even by its usual frenetic standards, the London rental market started 2023 at a very fast pace and our Japan Desk has been kept extremely busy. The number of transactions is already up 33% on Jan/Feb 2022 levels and we are now seeing signs that the traditional peak period is set to return in March/April, so we are advising our corporate clients to plan ahead. The sheer increase in recent tenancies is a clear indication of how serious these recommendations should be taken.

Tenants ready to look further afield

The spring months coincide with the time that most Japanese companies prefer to transfer personnel on secondment to London, but there is also another factor that is affecting lettings right now. As we reach the halfway point in quarter one, we can predict that in addition to the normal influx of corporate placements, we will also see some tenants unable or unwilling to renew on terms characterised by high market rental increases. These tenants will be on the move in search of affordability and with such a shortage of homes available right now, it is a challenge to meet the current demand.

Japanese companies strict on rent increases

Traditionally, Japanese companies are not inclined to tailor their budgets in response to sudden property market changes. These are organisations that like to plan long-term and have strict cost control policies in place. Formal approval for any budget decisions must come from the Japanese Head Quarters – a process that can sometimes take three to six months. The proposals have to pass through a hierarchical management structure after which some increases may be agreed to and some not. Therefore, we are expecting that a percentage of existing tenants will be in the market for accommodation that is of high-quality and close to transport, but outside Tube fare zones 1 will attract more.

Renewals will remain relatively high

Looking at the overall pattern of Japanese renewals still makes encouraging reading. The percentage of first renewals is always high – just above 85%. The level of second renewals comes in at a respectable 60%, so although these are on the increase, there is quite a large margin to play with. Usually, an average Japanese corporate tenants’ length of stay is approximately 3 years (so they renew twice). This is significantly longer than local AST tenants (18-24months). However, some tenants especially those who moved in during the COVID times will face a sharp price increase this year.

As the reputation of the Benham and Reeves Japan Desk continues to grow among the Japanese business community, we expect the Spring months to be very busy as prospective Japanese corporate executives start their property searches before coming to the UK. Western Circus in Acton, West London is a property development that will attract many as its zone 2 location provides an easy commute for professionals and there is already a strong community already there.

Shortage of homes leads to waiting lists

Stock shortages continue to fuel demand, so working with trusted professionals has never been more important. We would like to hear from any landlords who may have a property becoming available for rental in the coming months. We can vouch for our tenants, they have good budgets and really show great respect when they rent a property with us.

If you are a landlord and have a property to let in London and would like to attract a Japanese corporate tenant or any professional tenant, get in touch directly with our Japan Desk.