The property agent said rental levels crept back down by 0.1 per cent last month but rose by 0.6 per cent in the three months to October as the market continued to enjoy strong tenant demand.
Liam Bailey, head of residential research, said that while rents had subsided, this did “not herald a downturn in the market” and after a rise of 27 per cent in two years, a “moderation in growth was looming”.
London rental prices have shot up since their post-crash low two years ago, boosting landlords’ total annual returns by an average of 18.2 per cent.
Rents are still two per cent higher than the peak they reached in March 2008, when the London economy were yet to feel the effects of the credit crunch and job losses in the City.
However, ongoing redundancies in the financial sector and uncertainties in the employment market could dampen tenant demand, Knight Frank said.
Figures from City recruiter Morgan McKinsey show that available jobs across London’s financial services sector were 22 per cent lower in October compared to a year earlier.
Last month, Knight Frank forecast that the steep rise in rents would come to an end during the final quarter of 2011 but does not expect sharp reversal in rents. Rent hikes are likely to be capped between four and five per cent, close to annual earnings growth.