Prime central London has recorded the steepest decline in rental values for more than a decade.

The latest data from Knight Frank suggests that average rental values in prime central London continued to fall in September, taking the annual decline to 8.1%.

It was a similar picture in prime outer London, with rental values falling by 6.9% year-on-year.

Higher levels of supply and weaker levels of demand has had a negative impact on rental values in the capital, and Knight Frank predicts that this trend could continue into Q4.

Supply has been fuelled primarily by the addition of short-term rental properties onto the market as a result of the coronavirus crisis, while more homeowners opted to let their property due to the widespread uncertainty caused by the pandemic.

Meanwhile, the number of people looking for rental homes in London and the Home Counties has fallen, mainly due to weaker demand from international students and corporate tenants.

Nadia Butt, UK and Ireland country manager of Spotahome, said: “We’ve seen a sharp decline in movement by foreign tenants to the capital pretty much since the start of lockdown and this is undoubtedly hurting the London rental market where top-line rental costs are concerned.

“Many companies are freezing their plans to hire in the face of economic uncertainty while many more are adapting to a digital workplace and so the requirement to actually live in London isn’t as strong as it was prior to lockdown.

“We’ve also seen an influx of stock to the London market and this is causing rental prices to drop against a backdrop of lower demand. This additional stock is coming largely from the short-term let space, as leisure and tourism demand across the capital has all but dried up.”

But with rents starting to look more attractive as a result of the falling rental values of recent months, there are signs that more renters are now looking to take advantage of the favourable market conditions.

Knight Frank reports that the imbalance is starting to reduce as supply is absorbed by the market and demand comes back to some extent, driven in part by the falling rental values of recent months.

While the number of new prospective tenants increased by 56% compared to the five-year average in the week ending 3 October, the number of new valuation appraisals for landlords only rose by 3% in the same period.

Indeed, the ratio of new prospective tenants to market appraisals was 6.3 in the first week of October compared to 4.3 in the first week of June.