Rental values for luxury homes in London and the surrounding Home Counties are now 5 per cent above their pre-pandemic level in March 2020.
In prime central London, the annual change surged to 19.8 per cent in January compared to a year earlier when the market was depressed amid the third national lockdown in England, figures compiled by global property consultancy Knight Frank show.
There was also a significant change in prime outer London where the annual increase hit 16.6 per cent in January — again a reflection of the steep rises that took place over the course of last year.
“The unprecedented backdrop of the pandemic led to exceptional rental value growth last year,” said Tom Bill, head of UK residential research at Knight Frank.
“It has tailed off in recent months as the supply and demand imbalance corrects itself but that process still has some way left to run, which will keep upwards pressure on rents this year.”
In another positive note for landlords, the fall in rental values seen in the year to March 2021 when a flood of short-let properties hit the market and demand dried up, has reversed in line with easing restrictions.
However, this is less positive for tenants, who now face higher prices for rental homes.
“It’s a tough time to be a tenant at the moment, rents are rising and the availability of stock is low, which means transaction volumes are lower. That said, we believe stock levels should start to improve later this year,” said Gary Hall, head of lettings at Knight Frank.
A separate study from Zoopla found that rents in the UK are now £62 per month higher on average than when the coronavirus lockdowns started.
Across the UK, the average monthly rent was £969 by the fourth quarter of 2021, Zoopla said, with higher average rents adding to the pressure on households already facing a perfect storm of rising bills and squeezes on their income.
Meanwhile, price growth is also on the horizon in prime London sales markets, Knight Frank said, with the number of new prospective buyers 72 per cent above the five-year average in January, although the number of sales instructions was down by 12 per cent.
A return to more balanced conditions does not appear imminent, said Knight Frank, as international buyers still appear reluctant to make a purchase while the uncertainty around Covid persists.
The consultancy expects international buyers to arrive in greater numbers from the spring as their habits tend to be more seasonal.
In the meantime, supply is building gradually with the number of new market valuation appraisals, a leading indicator of supply, 6 per cent above the five-year average in January. That compares to an equivalent decline of 30 per cent in January 2021 when the UK locked down.
“Supply chain disruptions have prevented normality returning in various sectors of the economy including the property market,” said Mr Bill, head of UK residential research at Knight Frank.
“A supply/demand imbalance has produced gravity-defying UK house price growth and there may be a similar bounce later this year in prime central London. The extent of any uptick will depend on how quickly different countries are able to suppress the effects of Covid-19 and how easy outwards and inwards travel becomes. The lifting of travel restrictions in the UK last October is only one part of this global puzzle.”
The problem of low supply will take a period of time to resolve, as prospective sellers are often discouraged by a lack of purchase options, which produces a vicious circle of low listings.
While prices in prime London have so far been largely flat throughout the pandemic, they are now gradually increasing. Average prices in the year to January grew by 1.5 per cent in prime central London, the highest annual rate since August 2015.
In prime outer London, average prices increased 3.5 per cent, the largest annual growth since June 2015.
A series of moving parts, including supply, demand and the return of international buyers, will need to align, but both figures appear likely to rise this year, Knight Frank added.