The supply of letting property in prime London postcodes is finally increasing. Not to the point that it has become a tenants’ market, but more balanced conditions are returning, and the trend is not confined to the capital.

Rising mortgage rates and the accompanying downwards pressure on prices means more owners are weighing up their options, which include letting out their property.

In the first three weeks of January, the number of new letting instructions in London was 10% higher than the equivalent period last year, Knight Frank data shows.

As supply picks up, more tenants are exploring their options rather than renewing their tenancy agreement, particularly when it involves a rent increase. That, in turn, will increase supply further.

Average rental values in prime central London are 24% higher than their pre-pandemic levels. The equivalent rise in prime outer London is 22%, underlining the extent of the increase some tenants have faced.

Despite the growth, demand remains as strong as ever. The number of new prospective tenants registering the final quarter of 2022 was 30% above the five-year average.

So, while Knight Frank expects upward pressure on rents to relent as supply picks up from a low base, rental value growth will not go into reverse, the company predicts.

The fact the sales market in prime London postcodes has begun the year more strongly than expected may also reduce downwards pressure on rents by keeping the supply of new rental property in check.

“We are not overrun with new supply, but a change is clearly on the way,” said Gary Hall, head of lettings at Knight Frank. “We are at the stage when tenants are doing more viewings and starting to shop around. Six months ago, the norm was a single viewing followed by quick decision about whether to take the property.”

Average rental values in prime central London increased by 18.5% in the year to January, while the rise in prime outer London was 16.4%.

As a result of fast-rising rents and slow-rising prices, average gross yields have increased. The figure was 3.8% across both prime central London (PCL) and prime outer London (POL) in January. It was the highest yield in PCL for 14 years and a nine- year high in POL.