Significant growth in the private rental sector in central London’s prime property market over the past decade now sees 16.2% more households living in private rented accommodation than in owner occupied properties.

New research also shows that supply is down with the number of new properties coming onto the market down in the second quarter of the year compared to the same period in 2013 with flats down 14% and houses down 27%.

The report from estate agency, W.A.Ellis in conjunction with independent property intelligence company, Dataloft and data provider Lonres, reveals that supply levels of flats have fallen most significantly in the lower price brackets, with new properties on the market below £750 a week down by 19% since March 2014. At the upper end of the price scale at £2,000 plus per week, supply levels have fallen by 10.2%.

Rental values achieved in the second quarter of 2014 were 5.1% higher than in the same quarter of 2013, a reflection of the improving economic outlook which sparked a turnaround in the market in late 2013.

The family house market in the prime central London sector is the most competitive with the number of family houses let so far in 2014 at W.A.Ellis up 12% on the same period in 2013.

Family houses are the most supply constrained homes. Since March 2014, houses have accounted for just 9.8% of properties brought to the market. The scarcity of family houses has meant tenants are paying 13.8% on average more for a house over a flat with the same number of bedrooms. In Kensington and Notting Hill this climbs to almost 25%.

The report also reveals that the lettings market has become more seasonal. Properties let between July and October accounted for 51% of all lettings in 2013. Over the last 10 years, properties marketed in November have taken 25% longer to let than those in September.

Gross yields for a two bedroom central London flat averaged 3% last year. Yields were lowest within the most expensive postcodes, with Chelsea and Knightsbridge recording yields at 2.5% and 2.3% respectively.

‘The growth in property sale values has prompted a number of landlords to cash in and sell their investment, one reason for the drop in supply levels in some areas of the market. Indeed, at W.A.Ellis, the percentage of vendors selling rental accommodation has risen from 22% to 32% over the past decade,’ said Lucy Morton, senior partner and head of lettings at W.A.Ellis.

‘This trend has been especially prevalent in the family house market, and is contributing to the current shortage of this type of rental property. The traditional buy to let market of one and two bedroom flats, however, is relatively unaffected,’ she added.

She pointed out that unlike investors in the mainstream housing market, investors in prime central London have long been willing to accept lower yields while prospects for capital growth remain high.

‘Total returns continue to be attractive, but growth in prices has outpaced rents and, as a…