Savills says Prime London rents are to rise by 12.0 per cent in 2022 and by a total 18.3 per cent over the next five years – that’s more than the agency originally expected. 

In the year to June 2022, rental growth hit 13.5 per cent per year – the highest annual increase recorded in over two decades – driven by acute lack of stock and strong demand from tenants.

The agency says rents are also expected to increase across the London commuter belt, but at a slower rate of seven per cent over 2022 and by a total 11.9 per cent over the five years to 2026.

But cost of living and inflationary pressures expected to limit tenants’ spending power from the second half of 2022, though this is less a factor in the prime markets; this will cap rental growth in both markets to low single digits from 2023.

“Prime rental values in London have been steadily recovering from Covid-19 related falls since the beginning of the year. In the three months to June, rental values increased by a further 3.3 per cent, bringing annual growth to 13.5 per cent – the highest annual increase recorded in over 20 years –  which has more than compensated for the losses seen during the pandemic” comments Jessica Tomlinson, research analyst at Savills.

“The ongoing acute lack of stock, continued strong demand from tenants in response to the capital bouncing back to life, and employees returning to offices, means that we can expect pressure on prime rents across both London and the commuter belt, at least in the short term.”

In June, stock levels in London remained 35 per cent below June 2019 and 44 per cent lower in the commuter belt. 

By comparison, new applicants registering in London are up 71 per cent on June 2019 levels and are 45 per cent higher in the commuter belt. 

Savills expects continued rental growth over the third quarter of this year, driven by the significant imbalance between supply and demand.

Although rents continue to increase across the commuter belt, growth has begun to level out, following two years of rapid growth – with values 15.0 per cent higher than March 2020.