London’s last hurrah - double digit rent rises halved this year

Prime rental growth in London ended 2022 up 10.9 per cent on the year, according to Savills prime lettings index, as tenant demand continues to significantly outweigh supply.

On the quarter, growth has softened to 0.7 per cent, and this has brought total rental growth since the start of the pandemic to 12.5 per cent.

“The slowdown in growth seen over the past three months is typical of seasonal changes, and comes off the back of an incredibly strong year. Despite this, the growth seen over the last quarter of the year remains well above a typical Q4, evidence that the market is continuing to defy the wider economic slowdown as well as increased short-term pressures on household incomes” comments Jessica Tomlinson, research analyst at Savills. 

“The ongoing imbalance between demand and supply is expected to continue to drive rental growth. However, the sheer scale of rental growth over the past two years does somewhat limit the capacity for further significant increases, and over time we expect to see the balance between supply and demand gradually restored.”

From a price perspective, smaller properties at lower price bands are outperforming larger, more expensive rental homes.

“Rental properties at the top end of the market are dictated largely by discretionary spending. The market is certainly less frantic that it was during the middle of 2022, and now prime tenants feel they can bide their time to see how the next couple of months play out which is translating into slightly slower levels of growth” continues Tomlinson.

“However, our agents agree that young professionals and corporate demand continue to make up the bulk of demand, and we can expect these ‘needs-based’ tenants to continue to drive up competition in the early part of 2023.”

While Savills predicts continued competition for prime rental properties in 2023, as supply and demand slowly rebalances, previous high levels of rental growth will limit the capacity for further significant increases. 

The firm therefore projects growth to slow to an average of 5.0 per cent over 2023 across prime London, and to achieve net 13.6 per cent growth in the five-years to 2027.