A leading lettings agency and property consultancy has revealed that it anticipates stronger-than-expected rental growth this year and next in prime London.

Knight Frank says the imbalance between supply and demand will take more time than anticipated to correct, largely as a result of more landlords leaving the sector due to the mounting tax burden and increased red tape.

The agency says there is evidence the balance is correcting in the capital’s prime markets due to the discretionary nature of owners, some of whom have decided to let out their property due to the uncertain trajectory for prices.

But even so it expects a 23.9 per cent increase in rental values in Prime Central London by 2027 and a 23.3 per cent rise in Prime Outer London.

Across the UK, annual growth for across the UK stood at 5.5 per cent in August, according to the ONS, the highest rate since records began as the wider UK rental market grapples with the same supply-demand issues.

Knight Frank says demand for rented homes continues to be driven by multiple factors. The strength of the labour market and job creation is a key driver, as are higher mortgage rates, which are keeping more would-be buyers in the rented sector.

Nationwide data points to a 25 per cent fall in leveraged first-time buyer numbers in 2023 compared to pre-pandemic levels. At the same time, data from Rightmove suggests that rental listings are more than 50 per cent lower than the 2017-19 average.

The result is that the current supply-demand imbalance shows no sign of reversing. 

The agency warns: “We therefore expect rental prices will continue to increase over the upcoming three months and have revised up our rental growth forecasts for 2023 to 6.5 per cent, with a further 5.0 per cent growth forecast in 2024.”