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Renting in London: prime London rents soar by nearly a third to nine per cent above pre-pandemic highs

London’s lopsided rental market has led rents in high-end areas like Kensington and Belgravia to surge by nearly 30 percent in the past year, new figures show.

Rental values in prime central London saw a 29.9 per cent annual rise in April, according to the Prime London Lettings Report by estate agent Knight Frank. Prime central London includes areas such as Chelsea, Knightsbridge, Hyde Park and Mayfair, which fall in the London boroughs of Kensington & Chelsea and Westminster — where an apartment costs an average monthly rent of £3,960 and £3,870 respectively, according to recent data from Hamptons.

The huge 29.9 per cent price hike shown in the Prime London Lettings Report is partly explained by the fact rents slumped in early 2021, when the pandemic caused the market to be temporarily flooded with rentals. The market has now swung dramatically the other way with a supply crisis currently gripping the capital.

Knight Frank’s data showing rental values in all prime areas are now nine per cent higher than they were before the pandemic.

This imbalance between supply and demand is also reflected in the latest data, which shows the number of new property evaluations was 40 per cent below the five-year average in April, while the numbers of new tenants registering was 57 per cent higher over the same period.

“The supply squeeze is only going to get worse over the summer,” said Gary Hall, head of lettings at Knight Frank. “We will continue to see competitive bidding and supply will only improve when the sales market slows down and more owners decide to let out their property.”

For now, the capital’s huge rent rises are tempting some landlords back into the market. Landlords have been pulling out of the market for years, pressured by taxes and regulation, and causing the number of rental properties to shrink by 300,000 from the peak of 5.3 million in 2017.

But there is some evidence buy-to-let landlords are being tempted back. Recent research by estate agent Hamptons found investors bought £8.5 billion worth of property — equating to 42,980 homes across Britain — in the first three months of this year. It is twice the figure recorded pre-pandemic in 2019, and the first time since 2016 that more property has been bought than sold.

“The extent of the recent rent rises has started to compensate for some of the regulatory changes of the last few years,” said Knight Frank’s Andrew Groocock, regional head of sales for Knight Frank’s City, East and North region in London. “It’s increasingly driving activity in London’s apartment market.”

The supply squeeze is also hitting the sales market. According to Knight Frank, demand remains very strong compared to supply across London.

While new sales instructions in the first four months of the year were one per cent higher than the five-year average, the number of new prospective buyers (demand) was 69 per cent higher.

It mirrors recent research from Savills, which found the lack of supply is most intense at the top end of the market, with 71 per cent of buyers looking in the £1 million range struggling to find something to buy.

According to Knight Frank, there are signs that the strong house price growth is peaking against a backdrop of rising inflation and mortgage rates. Halifax’s latest House Price Index shows average UK house prices have risen again, but the growth rate is starting to slow.

Average prices in prime outer London areas such as Belsize Park, Chiswick, Dulwich and Fulham rose by 1.9 per cent in the three months to April, less than the 2.1 per cent in March. It was the first such slowdown this year.

The data shows that in prime central London prices remain in steady recovery mode after six subdued years, with quarterly growth reaching 1 per cent in April, the highest since July 2015.

A breakdown by each prime central area shows South Kensington had the highest price growth with 9.2 per cent, followed by Islington (5.7 per cent), Belgravia (4.7 per cent) and Hyde Park (4.6 per cent).