An increasing shortage of properties in the rental market is reported in the latest quarterly survey of the Association of Residential Letting Agents (ARLA) letting agents published this week. As a result, although average rental returns have declined slightly, achievable rent levels have increased over the last six months.

A third of all ARLA member offices reported having more tenants than properties available for them in the three months to March. This is up by nearly a quarter (23%) since the last quarter of last year and it shows the highest level of demand for rental property reported for nearly three years.

Throughout the country, less than four out of ten agents believe there is an oversupply of rental property, although nearly a third (30%) believe demand and supply is in balance.

However, there is still a substantial oversupply of properties in prime central London, where half of all ARLA members report more properties than tenants. This is a significant reduction since the previous quarter. Then, nearly two thirds were reporting an oversupply of prime central London property to let. On the plus side, London has seen improvements in rental returns.

Throughout the country, the differences in the reported rental returns were small. The average weighted rental return for houses was down slightly from 5.0% to 4.9% and for flats it was down from 5.3% to 5.2%. Within this fairly static picture, the improvement in prime central London is significant. The average return has improved from 4.6% to 4.8% in the three months to March.

The capital asset values of rented properties have remained stable with values rising by 1.5% in the rest of the South East and 2.7% in the rest of the UK. In prime central London, values fell by 2.7%.

Average rents achieved ranged from £2,604 a month for a house and £1,663 for a flat in prime central London to £828 a month for a house and £583 for a flat outside London and the South East. In prime central London, the average rent of a house is more than half as much again (57%) as the average rent for a flat. This substantial difference is to be found elsewhere. The average rent for a house in the rest of the South East is 48% more than a flat and in the rest of the country houses fetch rents that are 42% more.

In all areas, agents report that achievable rent levels have risen. Compared to three months ago, there has been a substantial improvement in prime central London, where the proportion of respondents saying there has been an increase in achievable rent levels has risen from 24% to 28%. This applies to all property types. In the rest of the South East the average achievable rent has risen from 21% to 26% and in the rest of the country there has been a small decline, from 37% to 35%.

Average void periods remain at around a month a year all over the country. The longest empty periods are to found in prime central London, where the period between lettings averages 32 days. In the rest of the southeast the average is 27 days and away from London and the South East the average void period drops still further to 25 days.

With some 500 letting agents and well over 300 investment landlords responding to the ARLA quarterly surveys of the private rented sector and the buy to let market, this far exceeds any other survey base within the rental industry. These highly significant quarterly results are achieved with the support of the ARLA panel of Lenders, Birmingham Midshires, GMAC Residential Funding, NatWest Mortgage Services, Paragon Mortgages and The Mortgage Business.

ARLA Chief Executive, Adrian Turner said, "Everyone with an interest in the lettings industry owes a debt of gratitude to the letting agents and investment landlords for their invaluable help in supplying the Association with information we all need to make informed decisions."