Rents in prime central London have risen sharply as demand from tenants continues to heavily outweigh housing supply in the private rented sector.

New figures from Knight Frank show that rents in prime central London increased by an average of 26.4% in the first quarter of the year when compared with the corresponding period last year, although this largely represents a return to pre-Covid levels.

Key to this trend has been the lifting of Covid restrictions and a lack of supply, in part borne out by the sales boom which motivated some landlords to sell, not rent, during the pandemic.

But Knight Frank says that there are early signs that supply may be slowly picking up in prime central London as prices soften and disappointed vendors unable to achieve their price ambitions opt to rent their home instead.

The data relating to the rental market in the capital was released as part of Knight Frank’s new Prime Global Rental Index, which tracks the movement in luxury residential rents across ten cities globally.

This first set of results confirm the extent to which top tier cities are seeing demand return and stock dwindle as workers, along with international students and corporate tenants return to the prime end of the market.

New York leads the rankings with rents up 38.5% in the year to Q1 2022, followed by London.

Toronto (17.2%) and Singapore (10.8%) also registered double-digit rental growth on an annual basis.

The surge in rents reflects a reversal of large falls in 2020, which helped attract tenants back to the city. But with rents now reaching pre-pandemic levels, economic growth stuttering and the labour market weakening we expect prime rental growth to cool rapidly over the remainder of 2022.

Toronto may prove one exception. Here, rental listings are down 23% in the year to March 2022 and Canada’s ban on foreign buyers may push demand higher as those relocating from overseas are forced to rent, not buy.

Hong Kong is the only city to see prime rents decline over a quarterly basis, down 1.1% in the three months to March 2022. A new wave of Covid-19 infections and the resulting border closures saw domestic tenants the only source of demand.

The inverse relationship between residential sales and rental markets means the performance of each city’s sales markets in the coming months will be a key factor to monitor.