Prime central London rents adjust downwards, latest analysis shows

Annual residential rental value growth in prime central London eased to 3.4% in June, reflecting a positive but hesitant mood in the lettings market, a new report suggests.

While June marked the twelfth consecutive month of annual growth, demand has been inconsistent ahead of an expected seasonal upturn in the summer as companies digest the outcome of the general election.

In similar fashion to the sales market, the prime central London lettings market is in a period of adjustment following an election result that few predicted, according to the report from international real estate firm Knight Frank.

The report also reveals that prime gross yields remained at 2.96% for the second month running and high stock levels in some areas means setting realistic asking rents has become more important.

‘One example is high stock levels in some areas, the result of landlords having waited for clarity around the result of the vote before deciding whether to let their properties,’ said Tom Bill, head of London residential research at Knight Frank.

‘The health of the prime central London lettings market is linked to that of the UK economy and some perceive it to be on a firmer footing under a majority Conservative government, which has caused stock levels to rise,’ he explained.

‘Properties for sale are also moving across to the lettings market, the result of some vendors choosing the rental option after a post-election spike in prices failed to

The result of higher stock levels is that prospective tenants are shopping around to a greater extent than before, which means setting realistic asking rents has become increasingly important,’ he added.

However, the picture is mixed across different markets and there is a shortage of family houses in areas including Kensington and St John’s Wood, as more families opt to rent due to affordability constraints in the sales market.

The report also points out that the impact of the election on decision making by large financial institutions over whether they remain in the UK will also have a bearing on demand in the second half of 2015.

For example, some banks are reviewing whether to stay against the background of an in-out European Union referendum as well as a wider debate surrounding the merits of the bank levy and plans to claw back bonus payments.