The impact of weakening job prospects in the City’s financial and business services sector has led to a downturn in rentals in prime central London.

“Although both demand and supply over the past three months are both up on last year (new tenant registrations are up 15%, viewings are up 23% and property instructions are up 34%) - the number of new tenancies has fallen by 7%,” said Liam Bailey, Head of Knight Frank Residential Research, “This indicates that potential tenants are looking but are reluctant to commit to making an offer.”

Bailey believes this is due in part at least, to the relatively poor job prospects in the City – with confidence particularly low in late 2011, a trend which has continued through into 2012.

The latest figures from Morgan McKinley’s London Employment Monitor, measuring job vacancies across London’s financial services sector, fell by 8% from February 2012 to March 2012, representing a year on decline of 57%.

Bailey says that as individuals reduce the amount that they are willing or able to spend on renting a home each month, many companies have also slashed their corporate relocation budgets, which would explain why the £500 to £1,500 per week rental band has once again performed better than the premium level £1,500+ sector.

Despite the recent downward trend the rental market could soon receive an Olympics-led boost as London hits the global spotlight and people from around the world choose to spend their summer here. Knight Frank says that some international companies have been enquiring about the availability of entire apartment blocks to short-let over the summer.

The downturn in achieved rents also needs to be set against the fact that they hit an all-time high in October 2011, having risen by 26.9% since mid-2009.

“These figures underline that the lettings market has been struggling since November last year,” says Tim Hyatt, Head of Knight Frank Residential Lettings and President of ARLA “But the Morgan McKinley data is a strong indicator for corporate relocation and is a concern and the lettings market is like the FTSE and it can change on a daily basis.

He added: “The lettings market will remain strong for the next 12 months with the mid Prime London market performing best with temporary to midterm contracts.”