Prime London rents slow as supply increases

London’s prime rental market is showing signs of cooling as increased supply meets returning tenant demand, property consultancy Knight Frank reveals.

Rent price growth in prime central London (PCL) fell to 3.5% in the year to June, the lowest figure since July 2021.

This trend is mirrored in prime outer London (POL) with growth of 3.6%.

The figures reflect a shift in the market dynamic as a lack of supply combined with high demand saw rents surge by more than 20% at one stage.

‘Wondering what happens next’

Tom Bill, the firm’s head of UK residential research, said: “Landlords and tenants will now understandably be wondering what happens next.”

Looking ahead, Knight Frank forecasts rental growth of just 2% in PCL and 2.5% in POL for 2024, with sub-5% growth predicted in subsequent years.

This slowdown is partly due to an increase in available properties.

Listings in PCL and POL combined were 12% below the five-year average in May, with a significant rise in high-value properties entering the rental market.

Downwards pressure on rental values

Mr Bill said: “As supply increases and demand reduces to normal levels, the downwards pressure on rental values in prime London postcodes has intensified.”

He says that rents will grow if landlords find new regulations from the Labour government are too punitive and decide to sell.

Mr Bill explains: “Labour, for example, has said it plans to end bidding wars among tenants if elected.

“The ambition to make life easier for tenants is logical but this particular proposal is based on the assumption that low supply and high demand are both permanent features of the lettings market.

“Instead, the reality is that as supply rises, tenants increasingly feel able to shop around and the market self-corrects.”

He adds that London’s prime market is seeing this take place.

David Mumby, the head of prime central London lettings at Knight Frank, said: “The result is that almost all tenancies agreed in the last month have been below the asking rent or subject to a rent reduction.”

Prime market for sellers has been hit

Knight Frank also reveals that London’s prime market for sellers has been hit by the impact of a weaker pound which gives a 28% discount to US dollar buyers.

That compares with pre-referendum currency levels.

Average prices fell by 2.4% in prime areas in the year to June for the second month in a row.

Buyers are also holding out for an interest rate cut and the possible implications of a new Labour government.

The consultancy also says that in prime outer London, prices have fallen by 0.9% over the past year as buyers tend to seek homes for employment and education opportunities.