Foxtons raises profit expectations as London rents surge

A leap in London rents has provided a boost for Foxtons, prompting the estate agency to raise its full-year profit expectations.

Rents have surged in the capital, as workers and overseas visitors return to London and landlords begin to pass on higher mortgage costs to tenants.

The London-focused agent posted £29.2mn in revenue from its lettings business in the three months to September 30, up 18 per cent on the same period last year.

The rent boost prompted shares in Foxtons to soar 15 per cent to 33.25p on Thursday morning.

“Growth was driven by a 23 per cent increase in average revenue per transaction, as higher average rental prices and longer tenancies offset a 9 per cent decrease in lettings volumes,” said the company, which derives two-thirds of its total income from the rental market.

Lettings income at Foxtons also increased modestly after the company acquired two smaller rivals, Gordon & Co and Stones Residential, earlier this year.

An increase in demand for rental properties in London this year has led to a squeeze in supply and fast-rising rents. Anecdotal reports of aggressive bidding wars and landlords pushing out tenants in order to increase their rates are common.

With rents rising, tenants are also looking to lock in longer tenancies in order to shield themselves from short-term shifts in the market, according to Foxtons.

The group’s results for the quarter “confirm all the anecdotal stuff you have heard about rents: rental growth is hitting the roof”, said Sam Cullen, an analyst at Peel Hunt.

That trend is likely to continue in the short term, he added, with demand still strong even at higher prices.

“But at some point, people have only got so much disposable income to pay the rent. If it’s £2,500 a month and it’s going up to £3,000 you can either afford it or you can’t,” said Cullen, adding that renters might need to start looking further afield if rental growth continued.

Foxtons also pointed to a stronger than expected sales market in the quarter but warned that “macroeconomic and political challenges” were likely to weigh on sales in the coming months.

The results cover the week following former chancellor Kwasi Kwarteng’s disastrous “mini” Budget, but are largely unaffected by the resulting steep increase in mortgage costs, according to Cullen.

Those additional costs are now expected to slow the sales market.

“We enter [the fourth quarter of the year] with a less certain sales market backdrop, but cost action taken in [the first half] and our resilient lettings and financial services businesses leave us positioned to weather further macroeconomic and political challenges,” said Foxtons’ chief executive Guy Gittins.