London's prime rental market is becoming more polarised. Prices in the east are accelerating faster than those in the west as financial services tenants move closer to the City in search of cheaper rents, new research shows.
Annual rental value growth in prime central London fell by one per cent in March – the lowest rate since May 2014, according to Knight Frank's monthly index.
But this masks a divide between different parts of the capital, with the City and City fringe areas growing by 2.2 per cent and Tower Hill by 1.4 per cent. King's Cross was also up by 1.8 per cent.
In contrast, Chelsea, Knightsbridge and Belgravia fell 4.6 per cent, 3.1 per cent and 2.2 per cent respectively. Rental prices in St John's Wood dipped by 1.5 per cent while Kensington was down 1.3 per cent in the year to March.
Knight Frank is forecasting rental growth of one per cent in western areas of prime central London for the year as a whole and 2.5 per cent in markets east of Mayfair and south of the Thames.
Tom Bill, Knight Frank's head of London residential research, said: "July 2014 marked the start of a 19-month run of positive annual rental value growth as demand transferred from the sales market due to uncertainty surrounding the UK general election and property taxation."
"However, supply also rose as a growing number of vendors decided to let their properties for the same reasons. This uninterrupted period of growth ended in February this year, partly as a result of higher supply, which put downwards pressure on rental values."
Global economic volalitity and falling commodity prices together wit the prospect of negative interest rates and June's EU referendum have also added further uncertainty and is likely to dampen demand in the rental market in the short term, he said.
However, despite this Knight Frank argued that the market remained strong and that the total return, which combines the rental yield and capital value growth, was four per cent in the year to February, outperforming benchmark indices including hedge funds and stock markets.