London’s prime rental market tightens as landlords leave

The lettings sector in London’s most sought-after areas is experiencing big upheaval as landlords abandon the market in response to the impending Renters’ Rights Bill, an analysis reveals.

The findings from Knight Frank says the Bill’s aim to bring in stricter eviction rules and heighten risks for rent collection is not going down well.

The real estate firm says the changes will prompt more landlords to sell – pushing rents up.

Combined with proposed stricter EPC rules and higher mortgage rates, the proposed Bill is already affecting availability.

Landlords are leaving

Knight Frank’s figures reveal a 10% drop in new rental properties entering the market in London and the Home Counties during the first quarter compared to the previous year, with a 15% decline since 2023.

Gary Hall, the firm’s head of lettings, said: “More landlords are leaving the sector, and we can feel on the ground that their numbers are reducing.

“Demand is strong, we have had another record year, and it is positive for the landlords who are staying in the market as there will be upwards pressure on rental yields.”

He added: “However, from a tenant’s perspective, the unintended consequence of rising rents would not be welcome.”

Supply demand imbalance

Knight Frank‘s data indicates a growing imbalance between supply and demand as the ratio of new renters to available properties reached five in the first quarter – up from 4.6 in previous years.

The growing imbalance also highlights the increasing pressure on the capital’s rental market.

This reduced supply of homes is already influencing rents in prime London districts.

For example, in central London, average rents climbed 0.6% in the three months to March, marking the steepest quarterly rise since November 2023.

That figure also pushes the yearly increase to 0.8% – the highest since October last year.

In outer London, rents edged up by 0.1% over the same period, the biggest quarterly jump since November 2023, with the annual rate rising to 1.2% from 1% earlier this year.

Prime rents rise

The firm’s head of UK residential research, Tom Bill, said: “Meanwhile, average rents rose 0.1% over the last three months in prime outer London, which was the highest increase since November last year.

“The annual figure was 1.2%, which was up from 1% in January and February this year.

“We recently revised up our rental forecasts to reflect the slightly more inflationary outlook for the prime lettings market in London.”

He adds: “Whatever the shape of the Renters’ Rights Bill when it comes into effect, subject to legal challenges and delaying tactics, tenants will hope they do not bear the financial brunt of the new legislation.”