Prime London rental values fell closer to their longer-term average in January, as supply continued to increase – but worries about rental reform and a possible Labour government are causing concern.

That’s according to Knight Frank, which says annual growth in prime central London of 7.2 per cent in January contrasts vividly with 18.3 per cent a year earlier. In the five years before the pandemic, the annual average figure was a gentle fall of 0.8 per cent. 

In prime outer London, rents grew by 6.2 per cent over the last 12 months, which was a more palatable figure for tenants than the 16.4 per cent recorded last January. However, that compared to a pre-Covid five year average of a 1.6 per cent fall each year.

The agency says supply has been rising due to a relatively subdued sales market, where low transaction volumes and minimal price growth has led to more sellers exploring the rental option. The trend is more visible in higher-value markets.

An active sales market during the pandemic, particularly throughout a 14-month stamp duty holiday, meant the supply of rental properties fell as owners capitalised on buoyant conditions by selling up.

New rental listings in prime central and prime outer London were seven per cent below their five-year average in the final quarter of last year, Rightmove data shows. That compared to a decline of 29 per cent in the last three months of 2022 and an equivalent drop of 40 per cent in 2022. 

The result of supply returning to more normal levels is that a growing number of asking rents are having to be reduced.

The Renters Reform Bill currently going through Parliament is designed to provide tenants with more rights, including a ban on Section 21 evictions. However, there are growing concerns among some at Westminster that the impending general election means the government may run out of time before it can bring in the new legislation, creating even more uncertainty.

Knight Frank’s research head Tom Bill says: “What might an incoming Labour government do if time runs out for the Tories? Given what some on the opposition benches have said about how much further they would go than the current proposals, they are unlikely to reverse the flow of departing landlords or reduce the upwards pressure on rents any time soon.”