Thousands of City job losses are hitting London's top-end rental market as bonuses are slashed and banks cut back on accommodation budgets, according to the estate agency Knight Frank.
The company's central London index showed that rents fell back by 0.2 per cent in January, leaving them 0.6 per cent below their September 2011 peak. Rental costs are are still 7 per cent higher than a year ago, but the agency said the market is likely to remain sluggish.
Knight Frank's head of residential research, Liam Bailey, said: "There are signs that the weakness in the City of London jobs market – where new employment vacancies are down 51 per cent year-on-year at the current time – is beginning to feed through to the rental sector.
"With the banking sector expected to deliver much lower bonuses in the first quarter of 2012 compared to last year, tenants who are building deposits for eventual entry to the housing market are looking to reduce their rental costs in the interim."
The consultancy Morgan McKinley's latest London Employment Monitor showed 2,835 jobs in financial services available in January – a big increase on December but fewer than half the 5,935 new jobs on offer in the City a year ago. State-backed Royal Bank of Scotland has culled 3,500 staff from its investment bank so far this year.
Financial firms are looking to house overseas staff for less than £1,000 a week, with a shortage of tenants looking for rental properties between £1,000 and £2,000 a week, Mr Bailey added. "Rental budgets for corporate tenants, employees who have been relocated to London by their firms, have been cut back by anything up to 15 per cent over the past 12 months."
A shortage of housing in London has driven up rents by more than a quarter in the past two years as demand for big deposits by newly cautious banks shuts would-be buyers out of the property market. But there are signs that tenants are unwilling to swallow further increases as salaries rise at a far slower rate. "Landlords are having to accept that continually rising rents are not a fixture of the market," Mr Bailey said.