Rents across two-thirds of London are lower than they were five years ago, according to property website Rightmove, while rental rates outside the capital hit a record high in the first quarter of this year.
London is the only region in the country where asking rents are lower than five years ago, down 6.5 per cent in the first quarter of this year compared with the same three-month period in 2016.
Meanwhile, asking rents outside the capital rose to an average of £982 ($1,365) per month in the first quarter of this year, up 2 per cent from 2016 and an increase of 4.2 per cent on the same three-month period a year ago.
Tim Bannister, Rightmove's director of property data, said the figures show a stark contrast between the rental market in central areas of London and the market across the rest of the UK.
“Agents are telling me that they don’t have enough rental stock to meet the demand from tenants in many areas, while in London there will be some tenants who have a lot more stock to choose from," Mr Bannister said.
“Landlords who five years ago took a longer term view obviously couldn’t foresee the effect that Covid would have on rents, and right now they’ll be doing all they can to prevent voids and hope the drop in rents is fleeting.”
The UK’s rental market is seeing record demand with a lack of available stock across all regions outside the capital leading to strong growth.
The frenzied sales market is likely to be exacerbating the rental challenge for tenants, with the average British house price hitting a record high of £254,606 in March, spurred on by UK Chancellor of the Exchequer Rishi Sunak's stamp duty holiday.
While potential buyers may be renting as they save up to buy a home, some sellers are also moving into rental accommodation until they find the home they want to buy, “adding further demand to already diminishing rental stock levels”, said Mr Bannister.
The biggest percentage drop in the capital’s rental rates is in Finsbury, where asking rents are down 24 per cent from five years ago, while the biggest five-year rise is in Hammersmith, where rents are up 12 per cent.
Richard Davies, head of lettings at Chestertons, said the Covid-19 crisis has hit central areas of London the hardest as tenants are no longer tied to their workplaces and have been free to seek larger properties and lower prices slightly further out.
“As a result, prices are the lowest we have seen for several years and represent incredibly good value for those tenants thinking beyond lockdown and looking to lock in to a good deal," Mr Davies said.
"As the country starts to open again, we expect growing numbers of tenants to return to the more central areas and anticipate that rents will quickly start to recover.”
The biggest rental decline in cash terms is in the luxury area of Knightsbridge, where monthly rents are £1,246 lower than five years ago, although they are still £6,221 per month on average.
The rental drop comes as London's most expensive penthouse went on the market in the high-end area. Billionaire property mogul Nick Candy is selling the two-storey, five-bedroom home in the ultra-lavish One Hyde Park in Knightsbridge for £175 million.