Prime London Rents Edge Higher as Landlords Brace for Policy Changes
February 2025 PCL lettings index: 221.3
February 2025 POL lettings index: 223.1
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The prime London lettings market remains largely in a holding pattern despite legislative uncertainty on the horizon.
Average rents in prime central London (PCL) rose 0.7% in the year to February, while there was a 1% increase in prime outer London (POL). A range of key indicators were largely unchanged last year compared to 2023, as we have previously explored.
The rental increases in February are certainly far less dramatic than they were three years ago, when growth in PCL and POL was closer to 20%.
Although supply has risen since then as the disruption of the pandemic fades, there are signs that nervousness around future legislative changes is having an impact on landlord sentiment.
For example, the upcoming Renter’s Rights Bill includes proposals that means it may become harder to evict tenants and raises risks around collecting rental income.
Landlords also have to weigh up their options against a background of tighter green legislation, rising mortgage rates and less favourable inheritance tax rules introduced in the Budget.
While the number of new rental listings in prime central and prime outer London in February was 12% higher than three years ago, it was 5% lower than the same month last year, Rightmove data shows. It suggests a degree of hesitation among landlords, which will maintain or increase upwards pressure on rents.
We revised up our rental value forecasts in November due to the legislative uncertainty and expect growth of 3.5% this year in both markets.
Indeed, declines in annual rental value growth appear to be bottoming out, as the chart shows.
Meanwhile, demand is holding steady. The number of new prospective tenants registering in the first two months of this year in London was 1% higher than last year, Knight Frank data shows. The number of tenancies started increased by the same amount.
It has also been a strong period for the super-prime (£5,000+/week) lettings market due to uncertainty over proposed changes to the non dom tax regime, with more foreign investors keeping their options open.
The number of super-prime tenancies in the six months to February was 9% higher than the same period 12 months ago, Knight Frank data shows.
Corporate demand is also stronger than last year. The number of enquiries from companies for UK lettings properties was 18% higher in February than 2023, Knight Frank data shows.
Corporate relocations to London and the surrounding area are typically from the energy, finance, professional services, legal and tech sectors.
“It has felt like business as usual in the first two months of the year,” said John Humphris, head of relocation and corporate services at Knight Frank. “Although stock is in short supply in some lower-value markets.”
Tenants will be hoping that supply holds as steady as demand during the rest of the year.