Investment returns for landlords in Central London residential property have been super-charged by the impact of the weak pound, drawing in foreign purchasers; London’s safe haven reputation, which has been enhanced by global political and economic turmoil and London’s economic revival following the 2009 recession, says Knight Frank.

Strong demand from tenants has allowed landlords to push rents higher at renewal dates and the critical point underpinning this process has been the strength of the central London employment sector. However that strength is now being tested by redundancies in several areas of the financial sector and Morgan McKinsey, the specialist City recruiter confirm that the number of available jobs across London’s financial services sector was 22% lower in October compared to the same month in 2010.

Demand and supply statistics for rental property are all pointing upwards at the moment but there is a noticeable imbalance between the rates of supply growth, for example new property (to let) instructions are up by 36% in the three months to October compared to the same period last year, whereas demand from new tenant registrations is up by 15% over the same period.

According to Knight Frank the sharp increase in tenant viewings, rising at twice the rate as new tenant registrations, suggests that tenants are becoming more confident about taking their time to view properties and are not feeling rushed into taking the first unit they see.

Last month Liam Bailey head of Residential Research said that the current steep rise in rents will come to an end during the final quarter of 2011.

However Bailey does not believe that a sharp reversal in rents is likely and he stands by their forecast that 2012 will see positive rental growth, “although this will be likely to be capped at 4% - 5%, close to annual earnings growth, which we believe is a realistic and sustainable forecast for the medium to long term for the prime London rental sector.”