Rental price growth in prime London looks set to pick up to hit an annual rate of about 2% over the next five years, compared with an existing year-on-year rate of 0.7% in prime central London and 0.4% in prime outer London, according to Knight Frank. 

The company forecasts cumulative rental value growth of 11% in prime outer London and 10% in prime central London over the next five years, supported in part by greater tenant demand and reduced levels of housing stock. 

Greater private investment and public spending are likely to stimulate tenant demand as the economy strengthens but Knight Frank predicts that there will also be downward pressure on supply as more meaningful house price inflation returns to the sales market, prompting more owners to sell. 

The lack of supply is expected to have a more marked impact in lower-value rental markets. 

The number of new rental listings in prime central London (PCL) declined 8% in the year to November compared to the previous 12 months, while the drop in prime outer London (POL) was 14% over the corresponding period. 

Knight Frank expects this trend to accelerate in 2020 in response to an anticipated bounce in the sales market. 

The number of new prospective tenants per new rental listing was 7.5 in November for properties valued at below £1,000 per week in PCL and POL, which is greater than a figure of 3.4 for properties valued between £1,000 and £4,000 per week, suggesting greater upward pressure on rental values.