Residential rents in prime central London fell back by 0.2% in January, and are now 0.6% below their September 2011 peak, but despite this recent trend they are still around 7% higher than a year ago, according to some recent data from Knight Frank.

Liam Bailey, head of Residential Research at Knight Frank said: “Rental falls in winter are not uncommon, the employment market is quieter and less people are typically looking to move to new positions.

“However there are signs that the weakness in the City of London jobs market, where new employment vacancies are down 51% year-on-year at the current time (according to Morgan McKinley), 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.

“Additionally rental budgets for corporate tenants, employees who have been relocated to London by their firms, have been cut back by anything up to 15% over the past 12 months.

“The other main driver helping to push rents lower is affordability. Tenants saw rents rise 27% in the two years to September 2011 – hitting all-time highs at that point. At best, disposable income, even in central London, only rose by around 8% over the same period, so landlords will have to accept that continually rising rents are not a permanent feature of the market.

“Activity has been strongest at the lower end of the market and to a lesser extent, the top-end. The sub-£1,000 a week bracket has seen more demand recently as people have been tightening their budgets, with both individual tenants and companies housing corporate tenants.

“Our view looking ahead is that rents will begin to rise slightly from the spring onwards but we are not expecting significant rises from here.”