"Tax changes have clearly shifted behaviour at the top end of the market, with many internationally mobile clients choosing to rent in order to preserve flexibility"
- Tom Smith - Knight Frank
London’s position on the global stage came into focus this week due to the volatility in the Middle East.
Geopolitical uncertainty is one of many factors influencing demand in the prime London property market.
While buyers and tenants are understandably sensitive to headline news, it is too early to tell how profoundly the latest events will affect their decision-making.
A prolonged conflict could weigh on UK domestic sentiment or push inflation higher through increased energy prices, potentially tempering expectations for interest rate cuts. For now, however, central banks are likely to look through near-term volatility in commodity prices.
Whatever happens next, we know that demand in the prime London sales market has been wavering for more than a year.
Tax changes, including the scrapping of non-dom rules, mean some buyers have chosen locations like Switzerland, Dubai and Italy over London.
Demand in the capital’s high-value rental market has been more solid. Wealthy individuals have kept their options by renting as taxes rose, as we explored here.
While the overall number of tenancies started in the year to February was down by 2% compared to the previous year, above £5,000 per week, there was an increase of 8%, Knight Frank data shows.
The number of new prospective tenants registering above £5,000 per week was 5% higher over the same period, compared to a 4% decline overall.
“Tax changes have clearly shifted behaviour at the top end of the market, with many internationally mobile clients choosing to rent in order to preserve flexibility,” said Tom Smith, head of super-prime lettings at Knight Frank. “In periods of uncertainty, that optionality becomes more valuable.”
Tight supply
The wider London rental market is still being affected by tight supply.
The number of new listings in prime central and outer London in February was 8% lower than the five-year average, Knight Frank data shows.
A series of tax and regulatory changes in recent years means more landlords have attempted to sell. They include the Renters’ Rights Act, which comes into force in May and will create extra uncertainty for landlords around setting rents, selling and regaining possession of their property.
Average rents in prime outer London rose by 2.9% over the year, which was the largest increase since July 2024, a period when the market was still coming down from pandemic-era highs.
Meanwhile, average rents in prime central London increased 1% in the year to February, which was down from 1.3% in January. Supply has been stronger in higher-value markets as owners typically have more flexibility, which has put pressure on rents downwards. Some have been unwilling to sell when prices in PCL are falling at the current rate of 4.9% a year.
The number of lettings properties listed above £1,000 per week in London in February was 7% above the five-year average.
