Average rents grew by 11.5 per cent in 2010, according to latest analysis from the company's research team. As a result, rents are forecast to grow this year by an average of 8 per cent across prime London and 7 per cent in the prime central zones.
This compares to a 1.0 per cent growth forecast for capital values across the capital this year. Growth in 2010 was supported by a general lack of properties available to rent at a time when increased demand for rental property, particularly from corporate tenants, was recovering.
North London outperforms but all areas show growth
These trends were particularly acute in prime North London (including Hampstead and Islington) where they resulted in exceptional growth of 17.6 per cent last year. Demand is running at an all time high in these areas, suggesting that 2011 will be a second year of very strong growth in rental values.
Demand outstripped supply across prime London, says Savills, resulting in rental growth in all areas: 5.1 per cent in prime Central London, 10 per cent in prime South West, 10.8 per cent in prime East of City and 17.6 per cent in prime North London.
Jacqui Daly, director, Savills residential research, said:
"Stock shortages persist which is good news for landlords. The dynamic of constrained mortgage markets, of buyers adopting a 'wait and see' approach, a lack of new build supply, a return of corporate tenants, improving employment prospects and the reduction in accidental landlords, means that strong rental growth will continue to characterise the market in 2011."
Demand strongest in lower tiers of prime
The lower tiers of the prime London rental markets have seen the strongest growth in 2010 as caution amongst tenants and reduced corporate allowances have concentrated demand for smaller properties.
In prime South West London the particularly strong sales market in 2010 reduced the supply of rental properties available as accidental landlords returned properties to the sales market. Additionally, needs-based family demand has persisted, pushing rental values up. Both houses and flats saw similar levels of rental growth reflecting the broad tenant base and variety of budgets in this market.
Demand strongest in south west London
The Savills Market Strength Indicator is a useful indicator of future price drivers. For prime central London the indicator is now 11 percentage points above its long term, 4-year average, while stock levels are 17 percentage points below the average.
In south west London the market strength indicator is at +79 per cent, with stock levels down 40 per cent, creating an acute demand supply imbalance, suggesting that values could rise ahead of the market average this year.
Jane Ingram, head of lettings at Savills, said:
"We expect to continue to see a growing number of UK tenants at all levels and from all age groups and walks of life.
"Renting is now considered a perfectly acceptable way of life in the UK, whether you simply can't afford to get on the housing ladder, want to try an area before buying or need to rent out your own home whilst renting a bigger/smaller one or in a different area to be close to schools or loved ones."
