Landlords and tenants see prime rental market entering a new phase

London’s prime residential rents have seen a significant slowdown after three years of record growth, Savills’ says.

The firm’s associate director of residential research, Jessica Tomlinson, says: “Over the course of 2021, 2022 and 2023 rental values of prime residential property in London rose by an eye-watering average of 23.1%.

“But over the last six months, we have seen a pronounced change in market conditions.”

The firm points to the first quarter of the year which saw a modest rise in prime property rents, but the growth was far slower than previous years.

‘Rents of prime properties did indeed rise’

Ms Tomlinson explained: “Our prime indices tell us that rents of prime properties did indeed rise in the first three months of the year.

“But in London the growth, of 0.3%, was less than a third of that seen a year earlier.”

And despite government reforms and rising interest rates, Savills says a mass exodus of landlords hasn’t materialised.

Ms Tomlinson said: “Firstly, it is worth saying we have not seen the exodus of private investors that some envisaged.

“The sale of properties bearing Capital Gains Tax has remained remarkably consistent.”

Outlook for prime rental values

The outlook for prime rental values suggests limited movement for a rise and Ms Tomlinson said: “On that basis, the prospect of a further surge in rental values is limited.

“However, significant downward pressure on rents is equally unlikely.”

Savills also says that the prospect of falling mortgage rates will ease some of the financial burden on landlords and that improving yields are supporting continued investment in the sector.

There’s still the prospect of a further surge in rental values being fuelled by a shortage of rental properties but rents won’t fall because ‘there are few signs that investor landlords will pile back into the market’.