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London Residential ReviewQ4 2019
The impact of Brexit on the sales market
Lettings activity surges
Finance costs remain ultra-low
KNIG
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1 Price declines moderate as supply fallsAnnualised % change in listings
n New £1 million-plus listings in PCL n Annual price change in PCL (whole market)
2 Sales activity on an upwards trajectory in PCLTransactions between January and September, per Knight Frank office, rebased to 100 in January 2015
n PCL n POL
Source: Knight Frank Research / Rightmove Source: Knight Frank Research
11%
The increase in transactions carried
out by Knight Frank in PCL between
January and September
25%
The approximate discount available
in PCL for buyers denominated in a
range of overseas currencies since
June 2016
£55 billion
The accumulated available potential
spend of all prospective buyers
registered with Knight Frank in London
in Q3 2019
-3.9%
The decline in average price in PCL
in the year to September, the most
modest fall in a year
P R I M E LO N D O N SA L E S M A R K E T I N S I G H T Brexit has affected sentiment in prime London markets but other forces are driving demand, as Tom Bill explains
Political uncertainty continued to
dominate sentiment in prime London
residential markets in final months
of 2019.
By mid-October, there were signs
the EU and the UK were moving closer
to signing a withdrawal agreement.
However, irrespective of the
political backdrop, transaction
activity has been on an upwards
trajectory in PCL.
Knight Frank carried out 11% more
transactions in prime central London
between January and September
compared to last year. In prime outer
London, transaction volumes were
broadly flat compared to last year, as
figure 2 shows.
The trend is due to a combination
of factors that include the stamp
duty-related price adjustments and
the Sterling discount, which have had
a more pronounced effect in PCL.
Meanwhile, activity is also being
driven by a prolonged build-up of
demand and the ultra-low cost of
debt.
Prices have now declined by an
average of 14% over the last four years
in PCL, which more than compensates
for higher rates of stamp duty. When
combined with the effects of a weaker
Sterling, overall discounts of more
than 25% are available for buyers
denominated in a range of overseas
currencies compared to June 2016.
The ratio of new prospective
buyers to new property listings was
14 in September in prime central and
prime outer London, the highest level
in more than ten years, indicating
the strength of pent-up demand.
Meanwhile, the total available
potential spend of all prospective
buyers of existing homes registered
with Knight Frank in London rose to
£55 billion in Q3 2019.
At the same time, the number
of new listings above £1 million in
PCL declined 28% in the year to
September, as more vendors hesitated
due to Brexit-related uncertainty.
This imbalance between supply
and demand means the rate of price
declines has moderated, as figure 1
shows.
Average prices for existing
homes in PCL fell 3.9% in the year to
September 2019, the smallest decline
in 12 months. The 3.5% decline in
prime outer London was the most
modest decline since May 2018.
London has also reinforced
its position as the leading global
investment hub, extending its lead
as the largest global centre for
currency trading, according to the
Bank for International Settlements,
underlining its long-term credentials
as a dominant global finance hub,
irrespective of short-term political
turbulence.
"Irrespective of the political backdrop,
transaction activity has been on an upwards
trajectory"
TOM BILL
HEAD OF RESIDENTIAL RESEARCH
-30%
-25%
-20%
-15%
-10%
-5%
0%
Mar-18 Sep-18 Mar-19 Sep-19
-6%
-5%
-4%
-3%
-2%
-1%
0%
0
20
40
60
80
100
120
2015 2016 2017 2018 2019
1 A L D G AT E3 - M O N T H C H A N G E
S A L E S R E N T S
1 8 B A R N E S3 - M O N T H C H A N G E
S A L E S
7 K I N G S C R O S S3 - M O N T H C H A N G E
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2 6 H A M P S T E A D3 - M O N T H C H A N G E
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2 3 C L A P H A M3 - M O N T H C H A N G E
S A L E S R E N T S
13 SOUTH KENSINGTON3 - M O N T H C H A N G E
S A L E S R E N T S
6 K E N S I N G T O N3 - M O N T H C H A N G E
S A L E S R E N T S
2 B E L G R AV I A3 - M O N T H C H A N G E
S A L E S R E N T S
1 9 B AT T E R S E A3 - M O N T H C H A N G E
S A L E S R E N T S
8 K N I G H T S B R I D G E3 - M O N T H C H A N G E
S A L E S R E N T S
2 7 Q U E E N S PA R K3 - M O N T H C H A N G E
S A L E S R E N T S
2 4 D U L W I C H3 - M O N T H C H A N G E
S A L E S
1 4 S T J O H N ' S W O O D3 - M O N T H C H A N G E
S A L E S R E N T S
3 C H E L S E A3 - M O N T H C H A N G E
S A L E S R E N T S
2 0 B E L S I Z E PA R K3 - M O N T H C H A N G E
S A L E S R E N T S
9 M A R Y L E B O N E3 - M O N T H C H A N G E
S A L E S R E N T S
2 8 R I C H M O N D3 - M O N T H C H A N G E
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2 5 F U L H A M3 - M O N T H C H A N G E
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1 5 T O W E R B R I D G E3 - M O N T H C H A N G E
S A L E S R E N T S
4 B AY S W AT E R3 - M O N T H C H A N G E
S A L E S R E N T S
2 1 C A N A R Y W H A R F3 - M O N T H C H A N G E
S A L E S R E N T S
10 MAYFAIR3 - M O N T H C H A N G E
S A L E S R E N T S
2 9 W A N D S W O R T H3 - M O N T H C H A N G E
S A L E S
3 1 W I M B L E D O N3 - M O N T H C H A N G E
S A L E S R E N T S
1 6 V I C T O R I A3 - M O N T H C H A N G E
S A L E S R E N TS
5 I S L I N G T O N3 - M O N T H C H A N G E
S A L E S R E N T S
2 2 C H I S W I C K3 - M O N T H C H A N G E
S A L E S
1 1 N O T T I N G H I L L3 - M O N T H C H A N G E
S A L E S R E N T S
3 0 W A P P I N G3 - M O N T H C H A N G E
S A L E S R E N T S
3 2 W O O L W I C H3 - M O N T H C H A N G E
S A L E S R E N T S
P R I M E C E N T R A L L O N D O N S A L E S R E N TS 3 - M O N T H C H A N G E
3 - M O N T H C H A N G ES A L E S R E N TS
- 0.4 %
- 0.6 %
0.5 %
0.3 %P R I M E O U T E R L O N D O N
1 2 R I V E R S I D E3 - M O N T H C H A N G E
S A L E S R E N T S
P R I M E L O N D O N P R I C E A N D R E N T A L G R O W T H , S E P T E M B E R 2 0 1 9
26
27
520
714
1
21
32
24
23
29
31
18
22
25
6
114
9
16
28
3
13
19
28
12
1
303015
10
0.5 % - 0.3 %
0.0 % 1. 7 %
0.0 % 0.6 %
-1.3 % -1.0 %
-1. 2 % 0.6 %
1.1 % - 0. 2 %
0.0 % 1.1 %
- 0.6 % 0.5 %
- 0.9 % - 0.1 %
1.0 % 1. 2 %
-1.0 % - 0.1 %
-1.0 % 2 . 2 %
0.0 % 2 . 7 % - 0.4 % 0.0 %
- 0.9 % 0.0 %0. 2 % 0.1 %
0.6 % -1. 2 % - 0. 7 %- 0.3 % 0.1 % - 0.4 % 0.4 % 0.5 %-1.5 % 0.3 % 0.0 % - 0.1 % 1. 2 %
- 0.8 % 1.1 % -2 .6 % 0.3 % - 0.4 % - 0.4 %-1. 2 % - 0.1 % -1. 2 % 0.9 %0.5 % -1. 2 % 0. 7 %
KNIG
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39%
The increase in the number of
tenancies agreed by Knight Frank in the
year to September
29%
The increase in the number of new
prospective tenants registering in the
year to September
3%
The annual increase in average rental
values between £250 and £500,
compared to a 0.1% decline across all
price brackets
-2.2%
The decline in average rental values
in PCL in the year to September 2019
between £1,500 and £2,000 per week,
highlighting the differing performance
by price band
P R I M E LO N D O N L E T T I N G S M A R K E T I N S I G H T Demand is surging in prime London rental markets, particularly in the lowest and highest price brackets, as Tom Bill explains
The lettings market in prime London
has continued to strengthen in
response to the backdrop of political
uncertainty in 2019.
The number of tenancies agreed
by Knight Frank in London increased
by 39% in the year to September on a
per office basis, which was the highest
such rise in more than ten years.
Irrespective of the large build-up of
demand in the sales market, political
uncertainty generated by Brexit has
prompted more people to rent. The
tenant fee ban, which was introduced
in June, has further driven demand by
reducing upfront costs.
The number of new prospective
tenants who registered in the year
to September 2019 increased by 29%
compared to the previous 12-month
period, which was also the highest
such rise in more than ten years.
Meanwhile, the number of
tenancies agreed below £1,000 per
week in PCL increased by 42% in the
year to September, the largest rise of
any price-bracket.
However, there are differing levels
of performance in different price
brackets.
For example, average rental values
between £250 and £500 per week
in PCL increased by 3% in the year
to September. This compared to an
average decline of 0.1% across all price
brackets.
Between £1,000 and £1,500 per
week in PCL, average rental values
declined 1.7% in the year to September
and between £1,500 and £2,000 the
drop was 2.2%. This relatively weaker
performance is related to the fact that
demand still remains more subdued
among the senior executives who are
typically more active between £1,000
and £5,000 per week.
Meanwhile, the number of
tenancies agreed above £5,000 per
week rose by 20% to 146 in the year
to September, whole market data
from LonRes shows, indicating how
demand in the highest price brackets
has strengthened in response to
political uncertainty.
Average rental values have been
broadly flat over the last 18 months
in PCL. As figure 3 shows, they have
strengthened moderately in the last
four months in response to lower
levels of stock as more property
owners looked to take advantage of a
relatively stronger sales market. This
trend will continue and maintain
upwards pressure on rental values
should political uncertainty begin to
lift.
"The political uncertainty generated
by Brexit has prompted more people to rent"
TOM BILL
HEAD OF RESIDENTIAL RESEARCH
3 Rental values strengthen as supply falls
n New rental listings in PCL (annualised % change) n Annual change in average PCL rental values
4 Demand and activity surgesAnnualised % change, per Knight Frank office
n New prospective tenants n Tenancies agreed
Source: Knight Frank Research Source: Knight Frank Research
-20%
-15%
-10%
-5%
0%
5%
10%
15%
Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 Sep-19
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
-30%
-20%
-10%
0%
10%
20%
30%
40%
Q3-14 Q3-15 Q3-16 Q3-17 Q3-18 Q3-19
KNIG
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ANK.2 1.6% 153
Overseas students will now have two
years to find a job in the UK after
they graduate, an increase from four
months. Student lets accounted for
21% of all London tenancies agreed by
Knight Frank in the 12 months to August
2019, up from 17% over the previous
year. “International students are already
a significant part of the market,” said
Gary Hall, acting head of lettings at
Knight Frank. “This change will only
help to strengthen that further.”
Five-year fixed-rate mortgage deals
have fallen below 1.6% for a maximum
60% loan-to-value ratio. Average
prices for fixed-rate mortgages have
declined due to UK political uncertainty
and global trade tensions. “We have
often thought that rates can’t go any
lower, but here we are again,” said
David Hall of Knight Frank Finance.
“Tighter regulations mean the main
criteria lenders can compete on is
price so it becomes a very competitive
market, which is something borrowers
need to be acutely aware of.”
The number of super-prime (£5,000+
per week) tenancies agreed in the
year to September 2019. “People are
watching and waiting for the political
situation to play out and some have
decided to rent,” said Tom Smith, head
of super-prime lettings at Knight Frank.
“People tell me they want to remain
flexible, not just because of Brexit but
because of their concerns around
global trade tensions and the state of
the world economy.”
Please get in touch with usIf you are looking to buy, sell or would
just like some property advice, we would
love to hear from you.
Tom Bill
Head of London Residential Research
+44 20 7861 1492
Tim Hyatt
Head of London Residential
+44 20 7861 5044
Knight Frank Research provides strategic advice, consultancy services and forecasting to a wide range of clients worldwide including developers, investors, funding organisations, corporate institutions and the public sector. All our clients recognise the need for expert independent advice customised to their specific needs. Important Notice: © Knight Frank LLP 2019 This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank LLP for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank LLP in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank LLP to the form and content within which it appears. Knight Frank LLP is a limited liability partnership registered in England with registered number OC305934. Our registered office is 55 Baker Street, London, W1U 8AN, where you may look at a list of members’ names.
Knight Frank Research Reports are available atknightfrank.com/research
Recent Publications
Demand for prime London property continues to be influenced by political events in 2019.
While the uncertainty surrounding Brexit and the stability of the government has led to hesitation in some sales markets, it has caused demand for super-prime (£5,000+ per week) lettings property to strengthen.
There were a total of 40 transactions agreed in this price bracket during the second quarter of the year, which was the highest figure for the period in more than seven years. Furthermore, there were 153 super-prime tenancies agreed in the year to June, the highest annual total over the same period.
“People are watching and waiting for the political situation to play out and some have decided to rent,” said Tom Smith, head of super-prime lettings at Knight Frank. “People tell me they want to remain flexible, not just because of Brexit but because of their concerns around global trade tensions and the state of the world economy.”
Demand has increased in areas like Notting Hill and St John’s Wood, says Tom, as figure 3 shows. “Demand in both areas is driven by the quality of the schools and they have been
particularly popular among US tenants. The weakening pound means overseas tenants have been able to increase their budgets.”
A tenant denominated in US dollars with a budget of £5,000 per week has seen this grow to the equivalent of more than £6,000 since the EU referendum, as figure 1 shows.
The emergence of high-quality super-prime developments has also helped drive tenants into areas like Mayfair, says Tom.
However, the supply of super-prime new-build properties is tightening, as the whole-market data in figure 4 shows. The number of new super-prime lettings listings declined to 209 in the second quarter of this year compared to 284 a year ago.
“The shortage of supply, particularly for the most in-demand new-build developments, means there can be a premium for the rental values paid,” says Tom. “There are several examples where this has pushed the rental yield to in excess of 4% in the best schemes, which is high by the standards of prime central London.”
London’s super-prime lettings market continues to benefit from political and global economic uncertainty, while the spending power of overseas tenants rises, as Tom Smith tells Tom Bill
Elm Park Road, guide price £10,000 per week
Upper Phillimore Gardens, guide price £25,000 per week
LONDON SUPER-PRIME LETTINGS INSIGHT AUTUMN 2019
FIGURE 2 London super-prime lettings volumes and achieved rental values
FIGURE 1 The rising spending power of US tenants How the equivalent of £5,000 in June 2016 has
changed over time for US$ denominated tenants
0
10
20
30
40
50
Q1-
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£17k £15k £19k £45k £30k £35k £45k £14k £20k £29k £25k £30k £19k £30k £25k £27k £20k £25k
£6,000
£8,000
£10,000
Tota
l let
s
Ave
rage
rent
al v
alue
Total Transactions Average weekly rental value Maximum weekly rental value
Source: Knight Frank Research / LonResSource: Knight Frank Research / LonRes
Tom Smith Head of Super-Prime Lettings [email protected] +44 20 7881 7730
Please get in touchIf you’re thinking of letting your property, renting in London or would just like some property advice, please do get in touch, we’d love to help
£5,000
£5,200
£5,400
£5,600
£5,800
£6,000
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Prime London Sales IndexSeptember 2019
PRIME CENTRAL
LOND ON
PRIME OUTER
LOND ON
PRIME CENTRAL LONDON INDEX
5,551.3
PRIME OUTER LONDON INDEX
266. 2
ANNUAL CHANGE
-3.9%QUARTERLY CHANGE
-0.4%MONTHLY CHANGE
-0.1%
ANNUAL CHANGE
-3.5%QUARTERLY CHANGE
-0.6%MONTHLY CHANGE
-0. 2%
Figure 1 — The ratio of new prospective
buyers to new property listings climbed
to 11.4 in August across prime central
and prime outer London, Knight Frank
data shows. This was the highest level
in more than ten years and reflects the
fact that while many buyers are primed
to transact, the political uncertainty
has caused some potential vendors to
hesitate.
Figure 2 — Despite the Brexit-related
political uncertainty, the number of
transactions in prime central London
has risen in 2019. In the six months to
August, Knight Frank carried out 13%
more transactions than the same period
last year. It was the highest figure over
the equivalent period since 2014.
Figure 3 — The level of viewings over the
summer was higher than it has been in
more than five years, which underlines
the current strength of demand. There
were 16% more viewings over July and
August than the same period last year
as buyers respond to price adjustments
and, in the case of overseas buyers, the
weakness of the pound.
The prime London sales indices are based on repeat valuations ofsecond-hand stock and do not include new-build property, althoughunits from completed developments are included over time.
knightfra
nk.com
/res
earch
1 Demand grows vs supply
n Ratio of new prospective buyers / new listings, PCL and POL
Source: Knight Frank Research
2
4
6
8
10
12
Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19
Ratio
2 Transactions rise in PCLNumber of exchanges from March to August (rebased to 100 in 2015)
3 Summer demand highest in five yearsViewings per office, PCL and POL, rebased to 100 in July 2014
n July n August
Source: Knight Frank Research Source: Knight Frank Research
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