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Now London's High Residential Rents Could Be Affecting Businesses Too

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last updated: 26 May 2016 report a problem

now londons high residential rents could be affecting businesses too

The state of the UK rental sector is something that we frequently bring up at The Tenant’s Voice – and we’re not alone, as this is an issue for tenants all over the country, as well as organisations working for better renting conditions and a friendlier rentals market. However – as we recently saw in the Chancellor’s autumn statement – not a huge amount of attention is paid to the difficulties that tenants suffer by those in the higher echelons of politics, mostly because this has not, until now, affected key sectors of the economy. Well, that could well all be about to change as the knock on effects of our broken rentals market are beginning to reach much wider than just struggling tenants.

As we mentioned last week, there has been some acknowledgement that buying property has become unaffordable for even those on healthy salaries with a decent deposit – and, as a result, we saw some tax advantages removed from buy to let landlords to make being a landlord a (slightly) less appealing prospect. New research has highlighted another broader effect of high rents that may, in the near future, also require practical measures – the cost to businesses of the rising rents that tenants have to pay.

Research carried out by estate agent Savills has found that a combination of being forced to factor in higher salaries that staff require as a result of shouldering more significant rents, as well as the increase in business rents, may see a large number of businesses – even large organisations – being forced to relocate to offices outside of London. The capital has always been seen as a thriving hub of creativity and business innovation but if it becomes affordable to hire staff in London then what will happen to local industry?

According to the research carried out by Savills, the average cost of an employee in central London is now £50,000, as compared to £33,695 in the rest of the country. That £50,000 is broken down into £35,000 of salary and then £15,000 per work station in rents, rates and service charges. The research revealed that the costs that employees have to pay to put a roof over their own heads is putting more and more pressure on employers trying to recruit and retain the best staff to provide salaries that reflect those costs. Given than many of those living in the capital spend around half of their income on rent, it’s no surprise that there is an increased in demand for wage rises to match above inflation rents.

There has always been a ‘London uplift’ or ‘London weighting’ that businesses usually apply to salary levels in order to take account of the cost of living in the capital. However, as rents soar (rising around 11% this year) this is becoming quite an issue for employers. While average London salaries are around the £35,000 mark, outside of the capital, and away from rents rising almost twice as fast as anywhere else, average salaries are £26,591 (Manchester), £28,881 (Edinburgh) and £26,346 (Birmingham). Given the substantial differences in those figures, is it any surprise that London is becoming a hostile environment to business, as well as to tenants, as a result of our out of control rentals industry. Something needs to be done…

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