February saw significant improvements in activity across the prime London lettings market, and annual rental growth also increased slightly after four months of falls. 

That’s according to data consultancy LonRes, which says the number of newly agreed lets in February increased by 14.2% compared to a year earlier and was 48.7% below the pre-pandemic (2017-2019) February average.  

New instructions rose last month by 17.6% on an annual basis, but the figure remained 42.0% below the average 2017-2019 February level.  

Across prime London there were 48.1% more properties on the market to let at the end of February than a year earlier, but that figure is 25.3% lower than at the end of February 2020. 

Annual rental growth across prime London rose slightly in February, to 3.4%, taking values to 26.7% above their 2017-19 (pre-pandemic) average. LonRes says that after four months of falling growth it will interesting to see if rents stabilise as we move through the year.

Data on discounts and reductions suggest that more balance is returning to the lettings market.  

The all-time lows for both discounts and price reductions were recorded in Q3 2022, indicating demand significantly outpacing supply.  Since then, these metrics have fallen back closer to pre-pandemic levels.  The average discount in February was 4.2%, compared to the low of -0.5% (ie, a premium to asking rent) in September 2022.  And 35.1% of properties were reduced before being let, compared to the low of 10.1% in July 2022.

Commenting on the findings, Nick Gregori – Head of Research at LonRes – says: “The Budget on 6 March saw some relatively minor tweaks to property taxation – on holiday lets, multiple dwellings relief, and capital gains – plus the abolition of ‘non-dom’ status.  

“This came too late to impact our February data so we will have to wait and see if there is any immediate impact, but it seems unlikely that the sum total of the changes will shift the dial for either supply or demand in the prime London property market.

“The lettings market has been supply-constrained for a long time, but so far this year there are emerging signs of new instructions picking up.  Stock on the market has grown by almost 50% compared to a year ago.  Annual rental growth appears to have stabilised at around 3.5% after a few months of falls. And our discount and price reduction metrics are moving back towards what would be considered more ‘normal’ levels.”