New property instructions were up 21% while tenancies commenced were up 1%.
The prime higher and lower price brackets remain active but the mid-market is suffering from deflated demand.
The ratio of new applicants to new instructions has fallen from 4.6 in 2011 to 3.6 in 2012
Liam Bailey, Head of Residential Research, said: "Rents in prime central London fell in May, dropping by 0.3% and reversing April’s small but promising 0.1% rise. Rents have fallen modestly for seven of the past eight months, and are now only 0.2% higher than in May last year.
"While supply is rising as keen landlords bring more properties to the market, the appetite for them is failing to keep pace – a reflection of continued uncertainty in the city employment market.
"This is most evident in the mid-market – notably properties with two or three bedrooms in the £1000 to £2000 per week bracket – due to the fact that it is the mid-level city jobs that have been most affected by cutbacks.
"With the on-going troubles in the euro zone and associated uncertainty in the finance sector, there is little sign of this reversing in the coming months.
"The higher and lower rental brackets remain active however, with seasonal demand for family houses, with four or five bedrooms and priced above £2000 per week, holding out as families look to settle over the summer before the academic year starts in September.
"Reports that rental accommodation in prime London could be in short supply due to this summer’s Olympic Games have clearly not yet been borne out.
"While this could be because the high demand for short lets simply wasn’t there, it could be argued that the demand was in effect removed by LOCOG, the London Organising Committee releasing a further 600,000 hotel room nights which were previously set aside for officials and the media but are no longer required.
"Demand could pick up over the summer as more families search for their new home in time for their children to start school in September, and also as London’s foreign students, estimated to total around 102,000, prepare to arrive in August to secure accommodation for the new term."
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