After a strong start to the year, the second quarter marked a more subdued period across much of the UK’s prime rental markets. Overall, average rents for prime properties continued to grow, albeit at a slower pace
Jessica Tomlinson, Associate Director, Savills Residential Research
Across the more domestic markets of outer prime London, average rents increased by 1.0% over the second quarter, leaving values 2.5% higher than they were a year ago. This growth has been underpinned by continued demand from needs-based, and often domestic, tenants. As such, outer prime London remains the location where annual rental growth has maintained an upward trajectory rather than continuing to slow.
Family houses attracted strong demand over the second quarter as many looked to secure homes ahead of the summer holidays and new school year. As a result, prime rents for houses across outer prime London increased by 1.4% over the last three months, compared to more marginal increases for flats (0.7%). Indeed, average rents increased most significantly across the traditional family house markets of Barnes, Clapham, and Teddington. Despite this, the market still remains price sensitive, especially across smaller, lower-value properties where affordability is the most stretched. Therefore, the strongest increases and premium rents are currently reserved for those best-in-class homes.
Rental growth across North West London was more subdued than in the other outer prime London regions over the second quarter. Average prime rents increased marginally by 0.2% and there was less variation by property type. Here in particular, tenants remained wary of stretching their budgets too far, while landlords were keen to cover growing costs in light of ongoing financial pressures. This misalignment is also true across the wider prime London market. Over the second quarter, 73% of Savills London agents reported that landlords expected rents to increase. Meanwhile, 55% reported that tenants expected rents to fall, with a further 28% expecting prices to remain stable. Bringing these divergent perspectives into closer alignment continues to be key to ensuring the best deals are secured for both parties.
Rents for prime properties across the prime regional markets outside of London experienced slightly lower growth, increasing by 0.6% in the quarter. This leaves values up by 0.8% over the past year. However, given the diverse range of locations covered, performance did vary significantly across the country.
Rental growth was the weakest across the suburban markets surrounding London. Here, rents fell by -0.5% over the second quarter and sit -1.1% below where they were a year ago. In particular, across the markets of Elmbridge in Surrey, stock constraints loosened over the last three months, causing rents to soften. While in the wider commuter belt, up to an hour commute from the capital, rents increased more marginally by 0.4% over the second quarter. Despite stock levels also increasing across many of these locations, this rise was matched by higher demand, which helped to support continued rental growth.
Elsewhere, regional towns and cities, the Cotswolds, and the South West of England regions all saw the most significant increases in prime rents across the regional markets. The Cotswolds and South West returned to more seasonal trends following a subdued first quarter, as international and needs-based demand bolstered rental growth. Whereas across regional towns and cities, stock levels increased over the second quarter. In particular, high levels of completions caused prime rents across Birmingham to soften by -1.7% over the last three months, as the market adjusted to new dynamics. However, new supply in the prime markets of Manchester and Cambridge was met with equally strong demand, helping to maintain upward pressure on rents.
Across Edinburgh, one of the top-performing locations, prime rents increased by 3.1% over the second quarter. Here, temporary legislative measures capping in-tenancy rental increase ended on the 31st March 2025, allowing landlords to reset to market values. While similar legislation may be revisited in the future, the second quarter marked a shift as many landlords looked to return rents closer to competitive market levels.
Across London’s most central locations, prime rents remained flat over the last three months, with annual falls of -0.3%. Smaller, lower-value properties continued to be the most resilient over the second quarter. Average rents for properties below £1,000 per week (pw) increased by 0.3% over the last three months and are 1.1% higher than they were a year ago. Conversely, rents for properties over £4,000 per week have fallen by an average of -1.7% over the past year.
Here, demand has played an important role. Enquiries for corporate relocations over the past six months were ahead of the same period last year, up by 5.0% on 2024, and in line with strong 2023 levels. This additional seam of demand has continued to support rents for flats and smaller, lower-value properties across the prime central London market. On the other hand, the more discretionary, higher-value part of the market has been somewhat impacted by the unwinding of the ‘non-doms’ tax status, considering their footprint in the capital’s most affluent central districts. As such, rents at the top end have been less resilient.
As we’ve seen historically, international demand continues to be a key driver for London’s most central locations. But areas typically favoured by domestic tenants also benefited from increased activity, with the most significant quarterly rental growth across locations such as Marylebone and Hyde Park.
Rental growth remained subdued over the second quarter, but activity levels continue to support a typical busy summer market. However, given the current level that values have reached, the largest increases and premium rents now look to be restricted to best-in-class properties.
Looking forward, as the Renters’ Rights Bill (RRB) continues to work its way through Parliament to its final stages, we anticipate that landlords will look to secure current market values ahead of this legislation becoming law. As such, asking rents are expected to tick up over the traditionally busy summer period, heading into the start of the university term. Therefore, aligning expectations between tenant and landlord, as well as an openness to negotiation, will be needed from both sides to ensure deals are agreed as smoothly and speedily as possible.
It is inevitable that once the RRB becomes law, many landlords will continue to adopt a cautious approach to their portfolios as changes work their way through the market. Consequently, we expect the constriction in new supply evident across much of the prime market to continue over the medium term. However, this environment presents an opportunity to investors, both individuals and corporate entities, to take advantage of a weaker sales market, lower interest rates and strong gross yields.
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