Prime central London rents are set to jump by 5% over the next six months, but will not recover to pre-pandemic levels until 2023, according to forecasts by Knight Frank.

Prime outer London rents are predicted to rise by 3% over the coming six months.

By December, prime central London rents will still be 12% below pre-covid levels, while prime outer London rents will be 10% down, according to the estate agency.

It reports that rental values have fallen steeply in the capital and the Home Counties since the start of the pandemic, but says the bounce-back is now underway with both prime central and outer London rents returning to previous levels within two years.

Knight Frank forecasts that prime central London rents will increase by 8% next year and prime outer London rents by 6%.

By way of comparison, annual rental value growth exceeded 15% as the property market recovered from the global financial crisis.

In the first half of the year, the two areas that experienced the largest increase in rental values in the capital were Hampstead (+2.5%) and Wimbledon (+1.5%).

However, the largest rise during the second quarter of the year was in Wapping (+1.9%), an area popular with those working in the financial services sector due to its proximity to Canary Wharf and the Square Mile.

Meanwhile, rents in Aldgate saw the biggest increase in the month to June (+3.5%).

Although lockdown restrictions did not fully lift until this week, Knight Frank says that the return to the office began driving demand around London’s financial districts several months ago.

It is a trend being replicated elsewhere in the world, including Manhattan.

Demand in the lettings market reached record levels across London and the Home Counties last month and rents are being pushed higher by a lack of supply.

There are particular shortages in central London houses to rent as well as in popular suburban and commuter zone locations.

Knight Frank head of lettings Gary Hall says: “We have been surprised by how quickly activity has grown this year and is exceeding pre-pandemic levels in most areas of London.

“Tenants are locking contracts in for longer periods as they plan for a return to normal life. 

“The domestic market still dominates demand but numbers of international tenants, both students and corporates, are on the rise. 

“After the financial crisis, it took three years for rents to recover and we are expecting the bounce back to be as quick if not faster this time.”