Prime London rents are now outperforming underlying capital values for the first time in almost four years, according to Savills.

The east of City rental markets have been the lead performers over the past year and are now 8.2% higher than the previous peak as financial sector confidence boosts demand. 

Savills reports: ‘Stronger economic sentiment and a more buoyant employment market have translated into increased corporate budgets and a pick-up in the prime lettings market in the first half of 2014, finally restoring average prime London rental values to their 2007 peak.

‘After rising just 0.6% in 2013, rents were up 1.4% year-on-year in Q2 this year, outperforming underlying house price growth for the first time since September 2010.’

Depending on location, growth has been driven by the family housing market, rising corporate relocation budgets and ongoing demand from singles and sharers in markets such as the east of City hotspots of Wapping and Canary Wharf, which have outperformed all prime London locations.

Yields in central locations such as Mayfair, Kensington and Chelsea, currently average 2.9% with investors most motivated by capital value growth and a secure store of wealth. Yields vary and are highest for properties worth less than £2m, though rarely exceed 4.0%.