The latest quarterly report by Citylets has found that the average rent for a two-bedroom flat in Edinburgh was £676 a month in the second quarter of 2007, up 5.6 per cent on the same period last year.

Overall average rents in Edinburgh in the second quarter were at £749 a month, compared to £720 in quarter one. One-bed flats increased by 2.9 per cent to £529.

Letting agents are reporting growing demand for flats in the city as banks and building societies tighten up on their lending criteria in the wake of the credit crunch, causing rents to increase.

Two-thirds of all two-bedroom flats are let within a month of being advertised – meaning most are never empty as it is normal practice to advertise properties around four weeks before leases expire.

The strong letting market in Edinburgh is being reflected across Scotland with the average time it takes to let dropping sharply in the last year.

And the average year-on-year Scottish rent rose 4.5 per cent on the quarter – the fastest rise recorded.

Thomas Ashdown, managing director of Citylets, said: "While other sectors of the economy may be facing challenging conditions, the residential lettings market is going strong.

"The surge in demand for rented accommodation first seen in November of last year has been maintained. The ongoing credit crunch and difficult housing market suggests that there will be no let up in people looking to rent in the short to medium term.

"We believe rents will continue to rise at a faster rate than in previous years but, while there may be some big hikes in specific postcodes for some lucky landlords, on the whole we expect increases to be reasonable."

Citylets said the strong demand for one-bed flats in particular in Edinburgh reflects the high demand from first-time buyers and young professionals.

The strong lettings market is in contrast to the wider "for sale" property market.

Figures for the second quarter showed there had been a year-on-year increase of 2.6 per cent in Edinburgh, taking the average selling price to around £233,000.

But there was a 35 per cent slump in sales volumes and analysts are forecasting that there will be no price growth between now and this time next year.

The Edinburgh rental figures put the average two-bed rent ahead of Glasgow, at £573, but below Aberdeen, at £822. But Edinburgh's percentage growth was double Aberdeen's.

Edinburgh also had the highest proportion of two-bed properties let within a month, at 66 per cent, compared to 57 per cent in Glasgow and 53 per cent in Aberdeen.