London rental values rose month-on-month in July for the first time since the start of the pandemic, said Knight Frank, beginning to reverse the steep declines experienced over the last 17 months.

The property business noted an increase in rents of 0.2% in prime central London, meaning the annual decline narrowed to -10.5%. In prime outer London, the same monthly rise meant the annual fall was 7.6%, the lowest it has been since September 2020.

Knight Frank predicts rents will continue to rise in the second half of the year, as supply becomes tighter and demand strengthens.

Supply and demand

Supply of rental properties spiked during the pandemic, as short-let properties moved onto the long-let market, a trend that is now reversing as lockdown rules are relaxed.

On the demand side, the “race for space” and the “return to the office” are helping to drive the recovery.

Plus, as more workers head back to the office, activity has picked up around London’s business districts.

Knight Frank said that the number of enquiries from corporate relocation agents reached its highest level in July since November 2019.

“The see-saw of high supply and low demand is tipping back the other way,” said Tom Bill, head of UK residential research at Knight Frank.

“Demand is coming from multiple sources and rental values are getting stronger as a result.”

New tenancies rise

The number of tenancies starting in July was 48% above the five-year average. Plus, the number of new prospective tenants reached a record high last month.

An important factor is the return of students to university, as they typically make up around a quarter of tenancies agreed in the capital by Knight Frank. As more get ready for the new academic year, demand is being driven higher.

“More students are now committing to take property ahead of the next academic year,” said John Humphris, head of corporate and relocation services at Knight Frank.

“Demand will be more evenly spread throughout the year but we can see the shape of things to come. In some areas that will inevitably mean a squeeze on supply.”