Prime London rents rise first time in six months, but supply outweighs demand

"Prime London rents increased in April for the first time in six months according to Knight Frank’s Prime Central London Rental Index. Although the rise was just 0.1% and followed falls totalling 0.8% in the six months to March, rents have now risen by 1.2% over the past year.

"But landlords should not expect a rapid rise in rents in the next few months, as demand is currently failing to keep pace with supply.

"Although new property instructions were up 56%, and new tenancy starts were up 40%, in the three months to April compared to the same period in 2011, new tenant registrations were up by just 5% and property viewings up by 15%.

"Further confirmation of this gap comes in the form of the ratio of new applicants to new instructions, which last year stood at 4.3 and this year, to date, stands at just 2.9.

"This can be explained by the continued lull in the City employment market and restricted budgets, both individual and corporate. It can also be attributed to the continued strength of the sales market in prime London, which is encouraging some to buy rather than rent.

"Within the prime market, there are differences in performance. Belgravia for example saw prices rise by 1.2% in April while Hyde Park saw a 0.9% fall. And while some two- or three-bedroom houses in the £1,700 to £1,800 per week price range in Knightsbridge, for example, are failing to attract attention, properties in certain developments in the area are proving quite the opposite and achieving good rents.

"Our view remains that we will see a modest growth in rents (1%) in 2012, before a more sustained recovery in 2013."