London rents fell for the seventh successive quarter in the first three months of this year, but may stabilise this summer, latest research shows. An oversupply of flats at new developments in London means Hong Kong landlords may have been caught out by the prolonged lettings slump. Many invest in these types of properties. However, their plight may be easing: lettings agents claim that a surge in tenant inquiries since April is helping to revive the market. London rents fell in the first quarter, according to the Royal Institution of Chartered Surveyors' (Rics) latest quarterly Residential Lettings Survey. This means they have fallen continuously since the summer of 2001. Tenant numbers have increased since the start of this year and so have the number of properties available for let, and this has pushed down rents, Rics found. However, rents are forecast to stop falling during the summer, when demand and supply levels become more balanced. Some London lettings agents concur with the Rics view. Estate agency Hamptons International said London rents fell 8 per cent in the first quarter. Arnaud Cheung, director of central London lettings at Hamptons International, believes the worst is over for landlords. 'In terms of central London, since April we have registered more applicants than this time last year. Some people have called it the post-Iraq War effect. Maybe that is a bit strong, but there is no doubt that tenants are definitely returning. In all our 15 offices, we have seen an increase in applicants since Easter,' he said. Estate agency Knight Frank reports a 15 per cent increase in business since the end of April at its eight London branches. Both estate agencies reported that tenant demand had been boosted by the emergence of 'in-betweeners' - Britons who had sold their homes and rented while sales prices were falling so that they could buy their next abode more cheaply. The emergence of 'in-betweeners' has boosted the overall British share of tenant demand. The proportion of British tenants renting through Knight Frank offices soared to 51 per cent in inner London and 51 per cent in outer London in the first quarter of this year, from 11 per cent and 42 per cent in the third quarter of last year. According to Hamptons, London landlords also benefited unexpectedly from the spread of Sars. 'We had a big increase in Asian applicants, people who would come back to the UK for a few months during the Sars outbreak, such as British expats and Hong Kong people who could combine it with a business trip here,' Mr Cheung said. A recent drop in the supply of rental property helped to balance the market, he said. 'In April we took on 20 per cent less stock than several months ago, because tenants are staying on and there are fewer prospective landlords,' he said. Sensing a favourable change in the market, landlords are angling for higher rents. 'Landlords are sensing the market is improving, and are therefore holding out for a bit more rent in negotiations,' he said. According to Knight Frank, the lettings market remains oversupplied with flats at new developments. 'There has been a surge of available flats in large new developments while the shedding of manpower by many of the international banks and other financial institutions has substantially decreased the number of potential tenants for this type of property,' the agency said in this month's issue of London Lettings Review . Tim Hyatt, head of residential lettings at Knight Frank, would not reveal which new developments were oversupplied. Many Hong Kong investors buy at new developments, and therefore may be experiencing difficulties letting their properties. Small, badly located flats are the least in demand from tenants. 'If buying off-plan, take advice from estate agents,' Mr Hyatt said. 'If a property is close to local amenities and transport facilities, then it will let. 'Look at the floor plans to check that the proportions are right, that it has a good view and a good finish. It is better to have a good-size two-bedroom flat than a chopped-up three bedroom flat.' Many developers are attempting to lure potential buyers with incentives, including offers to pay legal costs, stamp duty charges and move-in fees. Recognising investor concerns about the lettings market, Galliard is offering a guaranteed 6 per cent return for five years at its City Walk development in Bermondsey. Now was a very good time for investors to buy, Mr Hyatt said. 'There are some very attractive mortgages out there, and interest rates are possibly about to fall again,' he said. Some analysts remain sceptical about prospects for lettings. Robert Hadfield, analyst at residentialinvestoralert.com, said supply and demand remained unbalanced. 'I am not sure about the Hamptons and Knight Frank thesis. I think they are right that there is some discretionary renting coming into the market from former [owner/occupants], but at the same time some frustrated sellers are trying to let instead, so there may not be any net effect. 'I think there is little hope for the two-bedroom, two-bathroom lettings market, but I suppose that discretionary renting might help restore an equilibrium in the family homes sector.' London's economic downturn, especially in the financial services sector, continues to weigh down on its property market. 'Basically, I see troubled times ahead,' Mr Hadfield said.