Knight Frank has given an upbeat snapshot of the lettings market in Prime Central London, based mostly on higher rental growth thanks to declining levels of stock.
Citing Rightmove data, the agency says the number of new lettings listings in prime central and prime outer London was 13 per cent lower in 2018 compared to 2017.
Meanwhile, the overall number of listings declined by 21 per cent.
As a result of falling supply, annual rental value growth of 1.1 per cent was recorded in prime central London in December, while the decline in prime outer London was 0.2 per cent compared with 4.0 per cent at the start of the year.
Knight Frank says the tenant fee ban coming into effect in June may further dissuade landlords from entering the sector and may make current lettings less profitable.
The agency’s head of London residential research, Tom Bill, says: “There has also been speculation the government may introduce minimum three-year tenancy periods, which could have a similarly dissuasive effect on landlords who may not want an effective lock-up period on their investment.
“Despite this succession of legislative changes, the combination of strengthening rental values and declining sales values means that investment yields have risen in recent months.
“An average gross yield of 3.35 peer cent in prime central London in December was the highest figure in almost seven years. Meanwhile, a gross yield of 3.5 per cent in prime outer London was the highest in almost four years.
“Indeed, total returns in PCL outperformed a range of other asset classes in 2018. A decline of 1.2 per cent was relatively modest compared to a 8.7 per cent decline in the FTSE 100 total return index … and a 70 per cent-plus fall in the value of Bitcoin.”