Prime central London property rents fell by -7.4% during the first quarter of 2009, the second highest decline on record, according to Knight Frank.

Rents in this property sector have been falling for a year and are now -18.2% lower than at the same time in 2008 and at levels last seen in September 2000, according to the index.

The index also shows that although demand for rental property has increased by +20% over the last year this has been more than offset by a +67% increase in supply.

The biggest falls can be found at the top end of the property rental market. Rents for properties priced at over £1,500 per week have dropped by -11%. Falls are even worse in outer London where values have fallen by almost -20%.

Liam Bailey, head of residential research at Knight Frank, said: “Rents in prime central London have fallen dramatically over the past six months. Demand is more intense for these cheaper properties as a result of the stress on personal and corporate budgets. More expensive properties are proving more difficult to let unless landlords are flexible on price.”

He said that although demand for rental property is strong by historic standards, particularly at lower price points, supply has increased by more than half over the past year, mainly as a result of developers and other frustrated vendors opting to put their properties on the rental market.

Knight Frank expects rents to stabilise over the next quarter. Bailey said: “In many areas the recent declines mean that rents are beginning to offer good value. The excess of supply over demand should moderate as the year progresses.”