The number of lettings instructions in London was 21% lower in the second fortnight of the year, when compared to the first two weeks of 2023,  and 12% down in the following two-week period, Knight Frank reports.

The agency says that rental values are still 26% higher in prime central London (PCL) than before the pandemic while the equivalent figure in prime outer London is 23%.

Average rental values grew by 18% in the year to February in PCL while the equivalent rise in POL was 15.6%.

Rents have been pushed higher by stock shortages over the last 18 months, while the re-opening of offices and universities has boosted demand. Supply has struggled to keep pace as owners took advantage of a resurgent sales market, which was turbo-charged by a stamp duty holiday. Prospective landlords have also been put off by tax hikes in recent years and the prospect of further legislative changes, intensifying upwards pressure on rents. It means prospective tenants could face the frustration of supply that stays lower for longer.

“The strength of the sales market since Christmas has taken most people by surprise,” said Gary Hall, head of lettings at Knight Frank. “It means the flow of stock we had started to see come across to the lettings market in some areas has slowed down. This will keep supply tight and maintain upwards pressure on rents in the short-term.”

“Based on the evidence of the last few weeks, it looks increasingly unlikely that the lettings market will return to any sense of normality this year,” said David Mumby, head of prime central London lettings at Knight Frank. “Despite an initial flurry at the start of January, stock levels again feel low across all price points and prospective tenants will need to remain decisive when looking for a rental property.”