A reduced supply of luxury rental homes in London is feeding into higher rents, which are now a third higher than before the pandemic, new research has revealed.

In signs that the capital’s so-called prime residential market is following national supply and demand trends, analysis by LonRes shows that annual rental growth increased to 6% in February.

It is the highest level since November 2023, and as a result, average rents were 33% above their 2017 to 2019 average.

Data for last month shows an annual fall of 42% in lets agreed and a 29% drop in new instructions - both well below pre-pandemic levels.

Fewer expensive properties to rent

The stock of available rental properties also fell, with 19% fewer homes on the market across prime London at the end of February than a year earlier.

This is partly due to fewer rental properties being advertised rather than not being available, but other data sources also indicate significant drops in supply relative to longer-term trends, according to LonRes.

Nick Gregori, of Lon Res, explained that the prime London lettings market continues to be constrained by a lack of stock.

“Robust demand and low levels of new supply are sure to put upward pressure on rents so it’s no surprise that annual rental growth increased to 6% in February, the highest rate for 16 months,” he added.

“Within this average figure, larger properties are leading the way - flats with three or more bedrooms have seen the strongest annual growth and houses have been outperforming more generally since the pandemic.”

In the sales market, new instructions in February were 24% higher than last year and 47% higher than the 2017 to 2019 February average.

The stock of available homes for sale also continued to grow. At the end of February, it was 11% higher than a year earlier and 37% up on February 2020.

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