Knight Frank has forecast that rental values will end 2021 flat in prime central London (PCL) and prime outer London (POL), resulting in a rise by 5% and 3% respectively over the next six months.
The estate agency believes that by December, average rental values will be 12% below their pre-pandemic level in PCL and 10% below in POL.
However, it forecast that rents will have recovered to their pre-pandemic level by 2023, with average rental values rising by 8% in PCL next year and 6% in POL.
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By way of comparison, annual rental value growth exceeded 15% as the property market recovered from the global financial crisis.
In the first half of the year, the two areas that experienced the largest increase in rental values in the capital were the locations of Hampstead (2.5%) and Wimbledon (1.5%).
However, the largest rise during the second quarter of the year was in Wapping (1.9%), an area popular with workers in London’s two main financial districts.
Meanwhile, rents in Aldgate, an area next to the city, saw the biggest increase in the month to June (3.5%).
Gary Hall, head of lettings at Knight Frank, said: “We have been surprised by how quickly activity has grown this year and is exceeding pre-pandemic levels in most areas of London.
“Tenants are locking contracts in for longer periods as they plan for a return to normal life.
“The domestic market still dominates demand but numbers of international tenants, both students and corporates, are on the rise.
“After the financial crisis, it took three years for rents to recover and we are expecting the bounce back to be as quick if not faster this time.”
Tom Bill, head of UK residential research at Knight Frank, said: “Rents have dropped sharply since the start of the pandemic due to the combined effect of rising supply and falling demand.
“Demand and supply are now moving in the opposite direction, in some cases rapidly.
“This will lead to a marked recovery in rental values, a trend that will be boosted further by the re-opening of international travel.”