The number of new rental properties on the market in the three months to July 2016 increased 38.9 per cent year-on-year, according to Knight Frank's prime central London rental index.
Viewing levels and the number of tenancies agreed both swelled by a fifth over this period, while annual rental value growth fell 4.1 per cent to its lowest level since December 2009.
This came despite the number of new prospective tenants rising 7.2 per cent — as tenants shy away from paying increased levels of stamp duty until more certainty returns to the sale market.
Tim Hyatt, head of lettings at Knight Frank, said: "We are seeing good supply levels in the prime London market which means that tenants are in a strong position, although demand is on the rise."
It added that as supply outstrips demand, landlords are being forced to show increased levels of flexibility when negotiating with prospective tenants.
"In addition to levels of rent, this includes flexibility around break clauses, works to the property, levels of furnishing and payment arrangements," according to the report.
"The last time the balance of power was so firmly with the tenant in prime central London was in the immediate aftermath of the financial crisis, although demand is stronger now than it was in 2008 and 2009."