Rents for prime London properties have edged up by 0.3% in the first three months of the year, according to Savills.
The estate agency says that while the market is starting to return to normal seasonal patterns, on an annual basis prime London rents have slowed for six successive quarters, dipping to 3.2% in Q1.
Looking at long-term trends, however, prime rents are almost 18% higher than in March 2020 at the start of the pandemic.
In prime regional hotspots outside the capital, Savills found that rents increased by 0.9% in the last quarter and annual growth slowed to 4%.
In these locations, it says rents are 24% higher than in March 2020.
Generally, urban rents continue to outperform those of surrounding areas. Rents in towns and cities grew by 8.2% annually compared to 2.3% in nearby areas.
Built-up areas in London’s commuter belt outperformed rural commuter belt locations, rising by 3.9% annually, compared to 1.5%.
Savills research analyst Jessica Tomlinson says: “Rental growth picked up slightly on the quarter, however, affordability pressures and increased stock mean rental growth has settled at a much lower level compared with the last three years.
“But rents remain at a record high, and the prospect of falling mortgage rates is expected to ease some of the financial burden on landlords.
“Rental growth continues to exceed capital value growth, meaning that yields have improved across the sector, which will support continued investment.
“In London, houses are now outperforming flats, signalling that the flats market may be hitting an affordability ceiling, while tenants searching for houses typically have slightly more leeway when it comes to budget.
“Also, a stronger sales market has constrained the number of houses to rent across the capital, particularly across west and north west London.”
Tomlinson adds: “A shift in market conditions has caused the gap between landlord and tenant expectations to widen.
“With more choice, tenants are more commonly bidding below asking price on multiple properties.
“Greater consensus on pricing will be all the more vital in the coming months as the majority of agents across London and the country agree that stock will increase further over the course of the year.”
She says: “With ease of commuting firmly back on prospective tenants’ wish lists for, regional towns and cities and London commuter belt locations – including Chester (3.9%), Birmingham (3%), Cobham (2%) and Weybridge (2%) – were the strongest performers on the quarter.”
