Residential property rents in prime central London fell by 0.2% in January and are now 0.6% below their September 2011 peak, according to the latest report from Knight Frank.
However, despite the drop, rents are still around 7% higher than a year ago and Liam Bailey, head of residential research pointed out that rental falls in winter are not uncommon as the employment market is quieter and fewer people are typically looking to move to new positions.
'However, there are signs that the weakness in the City of London jobs market, where new employment vacancies are currently down 51% year on year according to Morgan McKinley, is beginning to feed through to the rental sector,' said Bailey.
'With the banking sector expected to deliver much lower bonuses in the first quarter of 2012 compared with last year, tenants building deposits for eventual entry to the housing market are looking to reduce their rental costs in the interim,' he explained.
'Additionally, rental budgets for corporate tenants, employees who have been relocated to London by their firms, have been cut back by anything up to 15% over the past 12 months,' he added.
He pointed out that the other main driver helping to push rents lower is affordability. Tenants saw rents rise 27% on average in the two years to September 2011, hitting an all time high. 'At best, disposable income, even in central London, only rose by around 8% over the same period. Landlords are having to accept that continually rising rents are not a fixture of the market,' he said.
In terms of sub-market performance, across central London there is a particular shortage of prospective tenants looking in the mid market, a definition which varies depending on the area, but is typically around £800 or £1,000 to £2,000 a week.
Activity has been strongest at the lower end of the market and, to a lesser extent, the top end. The sub £1,000 a week bracket has seen more demand recently as people have been tightening their budgets, with both individual tenants and companies housing corporate tenants.
The £4,000 plus per week bracket has also been active, especially in Belgravia and Knightsbridge, with the arrival of a number of Russian tenants at this level of the market.
'Looking ahead we believe that rents will begin to rise slightly from the spring onwards. We are not expecting significant rises from here,' concluded Bailey.
