Rental yields in prime central London have reached their highest level since 2009, as rising rents and weaker property values improve returns for landlords.

New figures from Savills show that prime rents continued to increase during the third quarter of 2026. However, regulatory uncertainty and tax pressures are restricting rental supply, particularly among lower-value properties.

Prime central London rents rose 1.1% between July and September, the strongest quarterly increase in two years. Annual growth reached 1.9%.

Outer prime London recorded quarterly growth of 0.9%, taking annual rental inflation to 2.9%.

Savills says the Renters’ Rights Act remains the biggest concern for landlords. Almost half of its agents identified the legislation as a key issue, followed by increased taxation on property income and higher mortgage costs.

The impact appears particularly pronounced among properties commanding annual rents below £100,000, which fall within the Act’s scope.

Savills reports that reduced availability in this segment has intensified competition among tenants, supporting further rental growth.

Jessica Tomlinson, research analyst at Savills, said: “There are signs that landlord caution is continuing to constrain rental supply, particularly in the lower rental value bands where pressure is most acute.

“That, in turn, is helping to support rental growth, although affordability constraints continue to limit the pace of increases.”

She added: “It remains too early to judge the full legacy of the Renters’ Rights Act. For now, we know that it has made some landlords more cautious, and some have reassessed their options.”

Smaller properties deliver strongest yields

Rising rents and softer capital values have improved yields across prime London.

Savills reports that gross yields on prime London flats are generally above 4%, with one-bedroom apartments delivering the highest average return at 5.8%.

Across prime central London, average yields have reached their strongest level in 17 years.

The figures suggest that some landlords may find stronger incentives to retain their properties despite concerns about regulation and taxation.

However, higher yields do not necessarily translate into higher net returns, particularly where landlords face increased financing, maintenance and compliance costs.

Regional rental growth slows

Outside London, prime rental growth remained subdued during the third quarter.

Average rents across prime regional markets increased 0.3% over the three months and 1.5% year-on-year.

The outer London commuter belt recorded the strongest longer-term growth. Rents in these locations now stand 33% above their Q1 2020 levels.

Birmingham, Edinburgh and Manchester were among the strongest quarterly performers, with smaller properties attracting particularly resilient demand.

However, Savills warns that tenants’ ability to absorb further rent increases is becoming increasingly limited.

Tomlinson said: “Rental growth remains in positive territory this quarter though the pace of growth remains well below the levels seen during the post-pandemic surge.

“Affordability constraints are increasingly acting as a ceiling on rental growth, with many tenants reaching the limits of what is realistic and sustainable within household budgets. As a result, landlords are becoming more pragmatic on pricing, recognising that securing a suitable tenant is often preferable to facing a costly void period.”

Will stronger yields keep landlords in the market?

Despite continued regulatory uncertainty, Savills believes improving yields could encourage some landlords to remain in the private rented sector.

The firm also points to reduced flexibility under the new legislation and the declining appeal of short-term letting as factors influencing investment decisions.

Tomlinson added: “At the same time, legislative changes have reduced the flexibility available to landlords. But with short-term letting becoming a less viable alternative for many, and yields strengthening, there is a growing incentive to remain in the rental market rather than wait for more favourable sales conditions. This should help support supply and create opportunities for well-positioned landlords as the market adjusts to the evolving regulatory landscape.”

The findings highlight a growing tension in the prime lettings market. Limited supply continues to support rents, while improving yields could encourage landlords to retain properties rather than sell.

Whether that translates into greater rental availability will depend partly on how landlords respond to the changing regulatory and tax environment.