The first quarter of the year marked an uptick, as all prime regions returned to positive quarterly rental growth. However, aligning landlord and tenant expectations with current market conditions will be key as we move through 2025.
Jessica Tomlinson, Associate Director, Savills Residential Research
Prime rents rose across both London and the regional markets over the first quarter of 2025, in line with a return in activity which the start of the year typically brings. Nevertheless, annual rental growth still remains in single-digit territory in most locations.
London’s largely domestic outer prime region outperformed, with 0.8% rental growth over the first quarter of the year. This was an uptick from the final quarter of 2024 where rents remained flat. As a result, annual growth totalled 2.4% over the 12 months to the end of March 2025.
Meanwhile, across the more discretionary market of prime central London, growth was somewhat more muted. Over the first three months of the year, rents increased by 0.3%, with annual growth remaining broadly flat at 0.1%. However, across the longest established, traditional prime central London neighbourhoods of Mayfair, Knightsbridge, and Kensington, growth was a little more encouraging.
Elsewhere, beyond the capital, prime residential rents increased by 1.3% in the first quarter of the year, meaning that, after two quarters of rental falls, annual rental growth came in at a similar figure of 1.5%. The commuter belt experienced the strongest quarterly growth, particularly in locations such as Guildford and Farnham. By contrast, rental growth in other town and city locations was more modest.
Over the recent past, rents for smaller and lower-valued properties have performed most strongly, fuelled in part by the more consistent nature of needs-based demand. As such, annual growth remains higher across this part of the market. However, over the first quarter of the year this trend was reversed.
In the prime regional markets, properties with rents above £4,000 a month experienced the strongest quarterly rental growth. Here, rents increased by an average of 1.6% over the first three months of 2025.
Similarly, across outer prime London, properties with rents above £2,000 per week increased more significantly than in any other price bracket, rising by 1.5% over the first quarter. And correspondingly, rents for properties with five or more bedrooms saw stronger rental growth in the three months to the end of March than smaller homes. Across these markets, limited stock of family houses has meant continued competition amongst tenants. In turn, that has kept upward pressure on rental growth.
The prime central London markets followed a less distinct pattern. While the discretionary super-prime submarket remained price-sensitive, lower-value price points continued to face more affordability constraints than some other parts of the prime market.
A misalignment between landlord and tenant rental expectations has been a constant theme since the market began to return to more normal seasonal patterns of rental growth, following the post-pandemic spike. And this gap remained evident into the first quarter of the year.
Despite some improvements in stock availability, continued demand has resulted in the number of applicants per Savills property remaining high. Across London, the average number of applicants per property in March was 6.1, while the ratio across the regional markets was 5.4. Both are somewhat higher than 2019 levels.
Accordingly, 58% of Savills agents in London reported that landlords expected rental increases during the first quarter of the year. However, 61% of those same agents said tenants expected to pay less in rent over the first three months, with 45% expecting a cut of at least 5%.
Outside the capital, expectations between landlords and tenants were more aligned. Most Savills agents agreed both parties expected rental falls of 0% to -5%, although that sentiment was stronger amongst tenants.
Such misalignments suggest that where rents are reviewed once the Renters’ Rights Bill is enacted, the onus will be on landlords to provide more evidence for rental increases, if they are to avoid being referred to a tribunal.
We expect modest rental growth to continue over the course of this year.
Although supply constraints have somewhat eased compared to historic lows, shortages still remain for certain property types and across particular locations. Additionally, the enactment of the upcoming Renters’ Rights Bill is likely to further limit available supply. Across more domestic outer prime London and regional markets, supply constraints are expected to be most keenly felt. Meanwhile, parts of prime central London are likely to be a little less affected given some high-value tenancies and corporate lets won’t be affected by this regulatory change.
However, these supply considerations sit against a backdrop of tenant affordability constraints and global economic uncertainty, pointing towards a gradual recovery across all parts of the prime rental market.
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