Rental value growth remains firmly in double-digits in prime London postcodes as demand continues to outstrip supply, according to Knight Frank.

The number of new prospective tenants was 60 per cent above the five-year average in October while new listings were down by about a third, the agency says.

As a result of this imbalance, average rents rose by 17.8 per cent in prime central London (PCL) and 15.4 per cent in prime outer London (POL) in the year to October.

A supply shortage has been a feature of the market since the second quarter of 2021 as landlords sold to take advantage of the strong sales market and more property reverted to the short-let market as Covid restrictions were relaxed.

However, as the outlook for the sales market becomes more uncertain, Knight Frank suggests there are early signs that the supply of lettings stock is increasing, a trend confined so far to higher-value properties. These are often more discretionary sellers who can sit out periods of economic volatility by letting their property. 

Market valuation appraisals are a good leading indicator of supply and for properties valued between £1,000 and £5,000 per week, the number was 17 per cent higher in October than it was in January. For sub-£1,000 properties, there was a 24 per cent decline.

“My sense is that we are approaching the end of the period where supply and demand are completely out of step” says David Mumby, head of prime central London lettings at Knight Frank.

“It’s not in every location yet, or in all price ranges, but there are more properties coming across from the sales market and in certain areas some asking rents are starting to soften, which we haven’t seen for many months. We are carrying out more appraisals together with our sales teams as owners explore all options. The moderate growth of 6% forecast next year looks more appropriate than the double-digit rises seen over the last 18 months.”

Rental yields reached their highest level in over a decade in October as prices dipped and rents continued to rise. 

The average gross yield in PCL was 3.72 per cent in October, the highest figure since June 2011. The average was 3.74 per cent in POL, which was the largest figure since December 2013.

Via @LandlordToday