We shouldn't be surprised about the speed and scale of recent rental growth in the prime London market, however a moderation is looming.

The strength of London's prime rental sector over the past 18 months, with rapid rental growth and growing demand requirements, can be attributed to central London's economic revival since 2009.

With that revival being tested by redundancies in several areas of the financial sector, it might be expected that signs of weakness would be emerging in the rental sector. The evidence to date is that the sector is continuing to deliver healthy returns for landlords, and at the same time tenants are having to act quickly in order to secure properties.

The 27% rise in rents over the past two years is perhaps not overly surprising, given that rents had fallen 20% in the 12 months to June 2009, a rebound was almost guaranteed once the economy had shifted out of recession.

At the current time rents are still rising and demand is outpacing supply. A close reading of the data suggests a slowing in these very positive numbers is likely to develop. New supply is beginning to rise, partially stemming from a revival in new-build completions in central London.

Demand is also up but, over the last two months, is beginning to be outpaced by supply growth.

Our view is that there is scope for future ongoing rental growth, but that the current steep rise in rents will come to an end during the final quarter of 2011.

A growth rate of 4% to 5% per annum, much closer to annual earnings growth, is more realistic and sustainable for the medium to long term, and forms the basis of our outlook for the prime London rental sector.

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