Tenant demand in London has increased 7% year-on-year, marking a significant reversal in a market that had previously trailed 2025 levels by an average of 7% throughout the year to date, according to data from Rightmove.
The capital now stands as one of only two regions recording annual growth in rental enquiries, alongside the North East which has seen a 1% increase. This contrasts with the national picture, where tenant demand remains 2% below last year’s levels across Britain overall.
The upturn began on 7th September when London’s rental demand moved above equivalent 2025 levels and has sustained this position since, based on Rightmove’s Daily Demand Tracker which measures enquiries sent to letting agents by prospective tenants.
Supply constraints persist
The increase in demand comes despite a 10% year-on-year reduction in available rental properties in London, compared to a 0.4% increase in rental stock nationally. This supply-demand imbalance has contributed to higher rental costs, with average advertised rents in the capital reaching £2,763 per calendar month, up 3.1% annually. The national average stands at £1,578, representing a 2.4% annual increase.
Smaller properties are driving much of the demand growth. Studio and one-bedroom rental properties in London have seen enquiries rise 10% year-on-year, compared with a 4% increase nationally. These smaller units command average monthly rents of £1,904 in London, significantly above the national average of £1,150.
Demand for larger properties is also growing in the capital, though at a more modest pace. Two-bedroom properties have recorded a 6% increase in enquiries, while three-bedroom homes are up 2.5%. Nationally, demand for these property types has declined by 4% and 6% respectively.
First-time buyer challenges
Colleen Babcock, Rightmove’s Property Expert, suggested that affordability challenges may be keeping potential first-time buyers in the rental market for longer. “One possible factor behind London’s recent rise in rental demand is that some would-be first-time buyers may be taking longer before committing to a purchase,” Babcock said.
She noted that mortgage rates remain near recent highs, while the gap between house prices and earnings in London continues to present obstacles for aspiring homeowners. This dynamic may be encouraging some prospective buyers to remain as tenants while saving for deposits or awaiting developments in support schemes such as the proposed Your First Home initiative.
The trend aligns with broader market pressures, as landlords respond to regulatory changes and supply constraints continue to shape the rental sector.
Market implications
The divergence between London and national rental trends highlights the capital’s distinct market dynamics. With rental stock declining and demand rising, particularly for smaller properties suited to single professionals or couples, the supply-demand imbalance appears likely to sustain upward pressure on rents in the near term.
For investors, the data suggests continued strength in London’s rental market, particularly in the studio and one-bedroom segment, though higher entry costs and potential tax reform will require careful consideration of yields and capital requirements.
