on.point
Prime Central London Residential August 2011
Low availability forces
prices and rents higher
There are scarce few properties available to buy in Prime Central
London and with demand improved in 2011, sales prices are being
forced notably higher. Strong positive price growth is in contrast to
annual price falls elsewhere in the UK.
A lack of properties to rent is the key feature of the lettings market.
Demand is strong and this has led to significant increases in rental
values.
2 On Point • Prime Central London Residential • August 2011
3
2
1
0
0
-1
Q4 09
Q1 10
Q2 10
Source: Jones Lang LaSalle
Q3 10
Q4 10
Q1 11
Q2 11
Figure 3. Sales price change by property type (% a year)
10
8
6
4
2
0
Small flats
Medium flats
Large flats Medium houses Large houses
Source: Jones Lang LaSalle
Figure 4. Currency adjusted sales price index
110
100
90
80
70
60
Q2 11
Q1 11
Q4 10
Q3 10
Q2 10
Euro
Q1 10
Q4 09
Q3 09
US dollar
Q2 09
Sterling
Source: Jones Lang LaSalle
Q1 09
40
Q4 08
50
Q3 08
So, with demand, and international demand in particular, at high
levels, and with available supply severely constrained, sales prices in
Prime Central London are being forced higher. Vendors are aware
that they are in the driving seat and can be optimistic on asking price
and potential purchasers are fully aware of the lack of buying options
open to them. The result is a spiral of ever higher prices and this has
accelerated during the first half of 2011.
4
Q2 08
Domestic demand plays second fiddle to international purchasers in
Prime Central London, especially in the upper price brackets, but UK
demand has been robust for over a year now. However, with prices
being driven higher and with international purchasers often
overpowering their domestic counterparts, UK buyers are
increasingly being forced out of core central locations and into
surrounding districts such as Wandsworth and Clapham.
5
Q1 08
Overall, demand has picked up a little during the first two quarters of
2011. Overseas demand has been pretty strong for a couple of years
now and, barring a temporary dip during the second half of 2010, this
has continued into 2011. Unrest in the Middle East has led to
heightened demand for the safe haven of London residential property
from this part of the world although the perennial attraction of central
London property, the currency advantages compared to 2007 and the
strong outlook dynamics are all keeping international demand strong.
6
Q4 07
There is a significant lack of property to buy in Prime Central London.
This is the case across the full spectrum of property sizes and types
and the position is deteriorating because many international
purchasers are not simultaneously selling another London property to
release onto the market. The situation is so acute that prices are
being forced notably higher. This is frustrating buyers and is giving
vendors the upper hand in negotiations
Seller 70%
Figure 2. Sales price change (% a quarter)
Q3 07
Furthermore, London, and Prime Central London in particular,
continues to buck the trend of falling prices elsewhere in the UK.
Prime Central London sales price growth, at 5.9% in the year to Q2
2011 is a stark contrast to the 1.2% average decline seen across the
UK.
Buyer 30%
Source: Jones Lang LaSalle
% change a quarter
Market Overview
The Prime Central London residential sales market has been
particularly strong during the first half of 2011. The key feature of the
market is the low level of available supply but strong overseas
demand, robust domestic demand and an increase in transaction
levels are other key characteristics. The result has been strong
upward pressure on prices.
Figure 1. Balance between buyer and seller (%)
% change a year
• Sales prices up 3.1% in Q2 following 3.1% in Q1
• Annual price growth increases to 5.9%
• Average prices now 3.0% above 2007 peak
• Larger properties are seeing stronger price growth
• Currency adjusted prices around 20% below peak
Index
Sales market
Market Overview
The Prime Central London rentals market is highly active with market
conditions very tight. Demand is strong, from both international and
UK applicants, while available supply is severely constrained,
especially at the lower end of the market. The consequence has been
strong positive rental value growth.
The overriding characteristic of the lettings market is the severe lack
of properties to rent. While this has been an issue for around 18
months now, the severity of the situation has escalated further during
2011. The lack of rental properties on the market is most acute at the
lower ends of the market with studio and one bedroom properties in
particularly short supply. There is still a shortage of two and three
bedroom apartments but the imbalance with demand is not as
significant. The demand and supply pressures are least acute at the
very top end of the large house market where weekly rents are
£5,000 or more.
The plight of existing rental tenants is also proving significant. When
considering a possible move, they are faced with both a lack of
alternative properties to rent and also the prospect of a substantially
higher open market rent for a similar property. Unsurprisingly, many
tenants are choosing to renew existing tenancies while accepting a
modest, but below market, rental uplift from the landlord. The number
of properties returning to the market when tenancies end is therefore
far less than usual and is constraining available supply.
Lettings demand has picked up notably during Q2 and remains
significantly ahead of available supply. Employment activity in the
financial and business service sectors has increased during 2011 and
this is fuelling rental demand from both UK based applicants and from
those relocating from overseas. There remains a notable contingent
of both new and existing tenants who are renting because they are
unable to secure any, or an affordable level of, mortgage finance.
The upshot of these tight available supply and high demand
conditions has been another strong rise in rental values during Q2.
The 4.3% rise in Q2 follows several other quarters of positive growth
and means that rental values have increased by 14.2% in the past
year and 18.5% in the last 18 months.
Rental value growth has been strongest at the lower end of the
market where market dynamics are tightest. In the past year rental
growth has been 21.6% on smaller flats but below 10% for larger
houses. During Q2 medium sized houses joined smaller flats as the
highest rental growth performer.
Figure 5. Balance between landlord and tenant (%)
Landlord 75%
Tenant 25%
Source: Jones Lang LaSalle
Figure 6. Rental value change (% a quarter)
5
4
3
% change a quarter
• Rental values moved 4.3% higher in Q2 after 2.6% in Q1
• Rental values are 14.2% higher in year to Q2 2011
• Average rents now 3.3% above their 2008 peak
• Smaller flats are seeing highest rent increases
• Mid-sized houses experienced strong rent rises in Q2
2
1
0
0
Q4 09
Q1 10
Source: Jones Lang LaSalle
Q2 10
Q3 10
Q4 10
Q1 11
Q2 11
Figure 7. Rental value change by property type (% a year)
25
20
15
% change a year
Lettings market
On Point • Prime Central London Residential • August 2011 3
10
5
0
Small flats
Medium flats
Source: Jones Lang LaSalle
Large flats Medium houses Large houses
Contacts
Neil Chegwidden
Director
Residential Research
+44(0)20 7087 5507
[email protected]
Jon Neale
Director
Residential Research
+44(0)20 7087 5508
[email protected]
Johanna Dobson
Director
Valuation
+44(0)20 7087 5529
[email protected]
Kate Weller
Associate Director
Valuation
+44(0)20 7087 5549
[email protected]
Richard Osborne-Young
Director
Knightsbridge Sales
+44(0)20 7201 6690
[email protected]
Anna Kind
Associate Director
Lettings
+44(0)20 7087 5553
[email protected]
G
Our Prime Central London residential research covers Mayfair, Belgravia, Knightsbridge, Chelsea and South Kensington. We monitor
sales prices and rental values of secondhand stock from studio and one bedroom flats through to medium and large sized houses.
Prime Central London Residential – August 2011
OnPoint reports from Jones Lang LaSalle include quarterly and annual highlights of real estate activity, performance and specialised
surveys and forecasts that uncover emerging trends.
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