Click here for average weekly letting prices in London and the South East

Cadogan Square, pictured, is one of the capital’s most prestigious addresses, all elegant red-brick buildings, leafy gardens and steep property prices – £2.75m for a one-bedroom flat. You’d think that people would be falling over themselves to live there, even if only as a tenant.

Well, as we all know, appearances can be deceptive – there may not be any branded estate agents’ boards in sight, but there are 31 flats available to rent on the Belgravia square, 10 of which have come on the market in the past three weeks. And all are struggling to find new residents.

Many are available as a result of City workers leaving London in the wake of the recent financial turmoil and subsequent job losses: two-bedroom flats in central London at £2,000 a week are no longer in demand. Indeed, rental prices on the square have dropped substantially as a result of the glut. Nearly half the flats on offer have seen the asking rate slashed since they became available, some by as much as 30%.

“The tenants were usually well-off bankers who were being brought over from America,” says Gilly Hayden, a partner in WA Ellis’s lettings department, which has six flats available to rent in the square. “Now they’re coming in fewer numbers, and their budgets have been cut. People are looking to make economies, so, rather than spend £2,500 a week on a flat, they’ll spend £1,000 and get something that is less beautiful, but adequate.”

Emma Bennett, an executive at Property Vision, which finds homes for upmarket tenants, agrees. She used to source two-bedroom flats on Cadogan Square for people who came to work for Lehman’s and other investment banks – but now they are thin on the ground. The supply of properties to let has also risen. “Owners who found they could not sell put them on the rentals market instead,” Bennett says.

The story playing out on Cadogan Square is not unusual. Rental prices for family homes in London have fallen for the first time this year, according to Hamptons estate agency – by 5.5% between the end of June and the end of September (an average of £74 per week); and by 4.2% across the southeast (£27 a week).

All this is in sharp contrast to the boom the rental market experienced earlier in the year – in January, Hamptons reported 72% more new tenancies, renewals and relets than at the same time last year. So, does this spell the end of the brief rental boom? And with growing numbers of people looking to let their homes, rather than sell at a loss, will the rental sector follow the same downward spiral as the housing market? Already, rents are being reduced in much the same way prices have been. A four-bedroom house on Pelham Road, in Wimbledon, southwest London, for example, has just been reduced from £3,000 to £2,500 a month (020 8944 1301, www.hamptons-int.com). And five-bedroom Deepwood Lodge, in St George’s Hill, in Weybridge, Surrey, came on offer unfurnished for £7,750 per month in August, but is now available for £5,000 per month (01932 586220, www.savills.com).

“It’s the middle tier that has been hit hardest,” says Jane Ingram, head of lettings at Savills. “Properties like the ones on Cadogan Square, which previously went for between £1,000 and £2,500 a week to City high-flyers, are languishing on the market.”

Rents are coming down by at least 10%, if not 20%, according to Ingram – “And because you’ve got the stock coming through from the sales market, as well as lower tenant demand, things are just sitting there.”

The lower, “bread and butter” end – properties that let for less than £650 a week – is still active, as is the top tier – more than £3,000 a week in upmarket areas or above £1,500 everywhere else in the capital.

This sudden turn in the rentals market is not confined to the smart pockets of London. There is evidence that both prices and demand are falling outside the M25, too.

“We are starting to see downturns in numbers of applicants at the top end and in the levels of relocation activity,” says Catherine Manning, director of country lettings at Hamptons. In Cheltenham, for example, average letting prices fell by 7.1% between June and August, according to research carried out by Hamptons, while Winchester saw a drop of 5.5% in the same period. Windsor has also seen average rental prices dip – Savills is marketing No 18 Convent Court, a three-bed flat that has been available to let since the summer, for £2,200 a month, down from £2,650 (01753 834666, www.savills.co.uk).

“Cheltenham, Windsor and Winchester are places where people live and work – so the chances are that rents have dropped because people want to stay close to the centre, but can’t afford to pay as much,” Manning says. “Somewhere like St Albans is more commuter-led, so people are willing to come out of town and spend less for a larger house.”

Areas closer to London tend to be holding up best: average prices in St Albans, for example, are up by 6.5% this summer, while Guildford and Gerrards Cross have also seen price rises.

Across the board, however, rental stocks are rising. “We have three times as much as we normally do at this time of year,” says Teresa Wallace, head of lettings for Savills in Sevenoaks and Tunbridge Wells, both in Kent. “It is a tenants’ market.”

So, is there a solution for desperate landlords? One option is to target the short-let market. Harley Nott, who runs Coach House Rentals, a company that provides places to stay for visitors to London, has taken on more family homes this year. “It’s not suitable if you’ve got a property to let on a long-term basis, or need a guaranteed income,” he says. “If you want to cover council tax and running costs, though, it’s ideal.”

Perhaps someone should tell the owners trying to rent out properties on Cadogan Place.

Click here for average weekly letting prices in London and the South East

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