A drop in the number of properties coming onto the private rented market in prime central London (PCL) has begun to exert upwards pressure on rental values, according to Knight Frank.
The company points out that house price falls in PCL appear to have bottomed out while rental declines have also slowed.
The supply of new lettings properties has declined over the last 12 months due to a combination of factors, including more pricing stability in the sales market and a succession of tax changes in recent years affecting landlords.
In Chelsea, for instance, rental values fell 2.7% in the year to April, which compares to falls of more than 5% recorded at the start of 2017.
Demand in Chelsea remains robust and there were 25% more new prospective tenants registering in the year to April 2018 compared to the previous 12-month period.
Viewings increased by 5% while Knight Frank agreed 13% more tenancies over the corresponding period in Chelsea.
Arya Salari, head of lettings at Knight Frank’s Chelsea office, said: “Strong demand for Chelsea houses among tenants is the result of lingering caution in the sales market around higher rates of stamp duty.
“However, at some point this dynamic will reverse and it is increasingly common for tenants above £3,000 per week to insert a clause in the tenancy agreement that gives them first right of refusal to buy at the end of the contract.”
In lower price brackets, it remains more of a tenants’ market, according to Salvari.
He explained: “[This] is due to relatively high stock levels. However, this trend is reversing, which is putting upwards pressure on rental values.”