On Your Marks, Get Set, Go!

The Olympic countdown has started – but how will it affect your corporate relocations?

On 27th July this year the London Olympics will explode into action with what we all hope will be one of the most spectacular opening ceremonies ever. The athletes are already in training; will Jessica Ennis and Tom Daley lead the GB team to gold and glory? Can Andy Murray find the success that has so far eluded him on an Olympic tennis court? The country is behind them all 100 per cent and you can feel the excitement in the air already.

But what about the so-called ‘Olympic effect’ on the London rental market? Rumours of Olympic break clauses and rents being asked at up to ten times the long-term rental value are being bandied about in the market. If there is a short-term explosion in demand for the four week period of the Olympics and the Paralympics, what will be the long term legacy and how far will it extend?

To help our clients effectively plan their London relocations over the coming year, Saunders 1865 has reached out to some of the capital’s top letting agents to find out their views on the great Olympic unknown.

Early ripples

Ever since the London Olympics was announced on 6th July, 2005, the city’s hoteliers and landlords have been looking forward to it in the expectation of an unprecedented four-week money-making opportunity. During the subsequent years, the development undertaken in East London has been extraordinary: as well as the Olympic Village and venues, in Newham alone more than 3,000 new residential units with a value of more than £120m have been completed. The effect is a total regeneration of East London that has already started to make this easy-for-the-City area more desirable; the new Westfield Centre in Stratford has recently opened and nine separate railway lines serving the Olympic Park have transformed the transport infrastructure. The Olympic Javelin high speed train will travel at 225 kilometres an hour, bringing visitors to the Olympic site in seven minutes from Kings Cross – and this is just part of a £20 billion transport investment.

One million visitors expected

The Games themselves are expected to draw more than a million visitors London, some of whom will wish to stay close to the main venue, but most of whom are more likely to want to stay in central London. Many hotels are already fully booked for the period and for guests staying for the whole duration, serviced apartments offer an appealing alternative. According to a 2012 Olympic report by central London agents Fitz-Gibbon, demand will cover all levels of the market: from studio and one-bedroom accommodation for couples and individuals, and home-from-homes for families to large multi-roomed residences for teams and technicians, and luxury accommodation for sponsors and corporate guests. And as serviced accommodation gets snapped up, it is thought that private landlords will start offering their own homes and investment property to satisfy demand.

At this stage, the precise level of demand is unpredictable; according to Anshul Raja, Area Director of Central London Lettings at Chesterton Humberts, “We are expecting to see increased demand for serviced apartments in Docklands, the Tower Bridge area and Islington at a time of year when there is generally a shortage of furnished short lets anyway. At the moment, our Serviced Lettings Department is waiting to get a better idea of demand."

Raja’s analysis is echoed by Susie Waterfall of Mount Grange Heritage. “We should get a feel for demand in the New Year; we’ve certainly felt a buzz of excitement now that it’s less than a year to go.” Suzie suggests that high end furnished lets will be popular with corporates who are planning to do a lot of entertaining and hospitality in conjunction with the Games.

Rent: how high will it go?

Stories in both the national and the property press have suggested that the Olympic period will represent a bonanza time for landlords, with some predicting asking rents for the period of up to as much as 10 times the long-term letting price. Of course, whether any properties will be able to command such premium levels of rent will depend upon the level of demand, something that as yet no one is certain of – but one thing’s for sure: most properties in a wide variety of London locations will be substantially more expensive than usual – the trick is to be able to predict which ones and by how much.

Ed Woolgar at Chesterton-Humberts is currently advising landlords on what sort of prices they might be able to charge for the duration of the Games. “We are telling clients to pitch their properties at a more realistic level,” he explains. “About four times the normal weekly rental should be achievable.” He also feels that demand may vary by area. “Visitors won’t just want to be based in East London; spectators will choose to stay across all of central London – after all, there will be events at Wimbledon and Wembley, beach volleyball in Horse Guards Parade, archery at Lords and so on. However, there will be plenty of demand in East London, particularly from those providing corporate services, media companies and journalists, sports marketing companies and from people who are actually working at the games such as venue management, catering and security staff.”

Jemma Scott is Department Head of Residential Corporate Services for Knight Frank, where it is also believed that rents will achieve up to four or five times the normal long-term level. “As the Games approach we should also see some properties that don’t normally come to the market being offered,” she says. “At the moment people are holding back to see whether they are going to be able to get the right price.”

The Olympic break clause: fact or fiction?

One matter of concern in the furnished lettings market is whether over coming months landlords are going to instigate the so-called ‘Olympic break clause’. This would allow them to turf long-term tenants paying lower levels of rent out of their properties over the Olympic period so that the landlords could bring in short term lets at premium rents for the duration of the games.

Suzie Waterfall hasn’t yet found any of her own clients intending to do this. “Of course, there will be some natural tenancy ends in the weeks before the Games,” she says, “but these haven’t been particularly engineered. We would always advise clients to hold onto good long-term lets and not to sacrifice them to short term gains.” This advice seems to be holding solid across the market. According to Jemma Scott, “We are telling our landlords with sitting tenants, please don’t lose a long-let tenant for the short-term gain. They would be crazy to lose a good tenant for a high premium over the Olympics. And while some landlords are not renewing in the hope of a lucrative short let, we’re advising them to think long term.”

Anshul Raja, on the other hand, thinks that there will be some break clauses. “This is most likely to happen when the existing tenants are happy to leave for the Olympic period. There are some people who definitely intend to get out of town at this time and it means the long-let market will be able to step in where there is a shortage of available properties. However, many leases don’t allow for short lets and call for a three-month minimum period. We believe that to get round this, some London councils such as Westminster will put temporary planning licences in place to allow for short lets at that time. The difficulty facing them is to make it quite clear how and when the properties will revert back to normal afterwards.” Ed Woolgar adds, “It’s not something we would advise our clients to do.”

And when the Olympic bandwagon rolls out of town...

“Once the games have finished we’ll be looking at something of a tenants’ market,” says Ed. “August and September are typically a busy time of year in the furnished lettings market but this time a huge number of empty flats and houses, vacated by their short-term Olympic tenants, will hit the market at once. The level of transactions will probably be high but prices are likely to drop off sharply as we go from Olympic premium rents to the more realistic level of rent in what will be a crowded market. Historical data from Barcelona and Athens show a bit of a dip in property rents immediately after the Games, and given the current economic climate this seems even more likely. However, the improvements in the infrastructure around East London will help to make it more popular than it previously would have been.”

In the longer term, the Olympic regeneration of the area should leave a legacy of more jobs and a higher demand for rental property in the area. This will be offset by some planned property development including 11,000 new homes in the Queen Elizabeth Olympic Park and a total of 64,000 new residential units in all. With the improved infrastructure and links to the City and the West End of London, the area will become much more attractive to both buyers and tenants. “The Olympics are doing a great job at highlighting this part of London and all the regeneration that’s been going on,” says Jemma. “It’s certainly going to have a positive effect in the longer-term; the infrastructure’s good and tenants love new developments. It’s the perfect place for people working in the City or Canary Wharf and there are excellent high speed links to Europe.”

So, planning 2012's relocations? Here’s what you need to know

The regeneration of Stratford and East London is already well underway, so for relocates with City jobs, this is an area well worth considering. However, having said that, potential long-term letting tenants may find it difficult to find properties here in the months running up to the Olympics, as landlords will be more interested in taking premium rate short lets over the four-week Olympic and Paralympic duration. If you do find somewhere in East London in the first half of the year, make sure you check the lease carefully in case of the dreaded break clause that could see your transferee bumped out of his or her house for a month by an unscrupulous landlord.

Jemma recommends looking at spring or autumn relocations to avoid all the craziness around the Games. Arriving in July, along with one million Olympic visitors will certainly not be a good idea.

However, for transferees arriving in August and September a glut of empty properties will give them plenty of choice and there may be a slight dip in the long-term rental rates as supply exceeds demand for a number of months. Beyond that, continued regeneration and redevelopment will make the eastern sector of the capital increasingly able to compete with west and central areas, so bear it in mind for your future relocations – it’s got the Olympic buzz and a new lease of life that looks set to continue long after the Games have gone.

If you’re planning a relocation for 2012, get up to the minute advice from one of our specialists – call Saunders 1865 on 0800 018 1865

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