Prime London’s rental growth has started to slow on an annual basis but a lack of stock continues to drive up rents with smaller properties leading the charge, the latest Savills Prime Lettings Index reveals.

Rents grew by 1.4% on the quarter (on par with Q1) and by 6.7% during the past year (down from 8.6% in Q1), leaving them 15.9% higher than in March 2020.

HOTSPOTS

South West London hotspots – Wandsworth (6.6%), Clapham (5.1%) and Battersea (4.1%) – significantly outperformed on the quarter, bringing annual increases to 6.8% and leaving rents over a fifth (21.5%) higher than pre-pandemic.

As a result, gross yields across South West London have pushed out to 3.8% on average and almost 4.5% for flats. However yields in North and East London (4.7%) are holding up strongest against the rising cost of debt.

Jessica Tomlinson (main picture), research analyst at Savills, says: “Early signs that price growth has started to slow will come as welcome news to renters who have seen prices rocket since pandemic restrictions began to ease.

“Tenants in some locations are certainly still willing and able to pay a premium to secure a property but stock is not as scarce as it was this this time last year, and only the highest quality homes can now expect multiple bids.”

REGIONAL MARKETS

Across UK prime regional markets, rents rose 2.5% on the quarter, pushing annual growth up to 5.3%, higher than the 5.0% recorded in Q1 2023.

Regional towns and cities saw the strongest rental growth (4.4% on the quarter, and 8.6% on the year), as the urban revival and back to the office trends continue. Edinburgh (5.9%), Birmingham (5.6%), Reading (4.1%) and Manchester (4.0%) saw the biggest increases in the quarter.

Tomlinson adds: “Many tenants are now prioritising connectivity over space. The smallest properties (one or two beds) are seeing the highest rental growth, a trend we expect to see continue over the coming months, particularly as students return to University towns.”