west end residential our patch, our view q2 2016 · piccadilly circus. 4–5 sales overview ......

West End residentialOur patch, Our view Q2 2016

2–3

With additional stamp duty coming into effect in April and the EU referendum in June, we thought we were in for a quiet quarter. In fact, we experienced the opposite, demonstrating just how resilient the London market, and specifically our patch is.

Overall, growth in the London market remained robust, albeit with a slight moderation in Q2. Nationwide recorded annual growth of 9.9%, down slightly from the 11.5% recorded in Q1. This growth was driven by strong activity in the first quarter, with sales volumes doubling in March as investors clambered to avoid paying an additional 3% stamp duty on their purchases. At the time of writing, it has been less than a month since the UK voted to leave the European Union, and it is too early to tell if there will be any significant impact on the market as a result. However, the fundamental drivers of London’s property market are not affected by the decision to leave. In fact, the prospect of declining interest rates and a weaker sterling could serve to boost demand further in the wake of the vote.

From our perspective, buyers do not seem to have been deterred in the lead up to the vote as the West End office exchanged on close to £60m worth of property; the second highest transaction value over the last four years. The lettings team also enjoyed a busy quarter, fuelled largely by the international student market looking to secure properties before the start of the academic year. This quarter the West End office agreed tenancies worth a total value of £69,150 per week, 14% higher than the same period of 2015.

We hope you enjoy the latest edition of Our Patch, Our View. If you would like any further information please do not hesitate to contact a member of the team, whose details can be found at the back of this report.

Overview

Jamie Gunning Executive Director

T: +44 (0)20 7182 2005 E: [email protected]

West End office

TempleLeicester Square

Covent Garden

Piccadilly Circus

4–5

Sales overview

Contrary to expectations, the impending EU referendum didn’t seem to deter buyers in Q2 as the sales team agreed the sale of almost £60m worth of residential property.

CBRE West End had a strong second quarter of 2016, despite the looming EU referendum. The office exchanged on almost £60 million worth of property; the second highest Q2 sales total over the last four years. Average sales values were also strong at £1,921psf. This is an increase of 9.5% compared with the same period of 2015 and again represents the second highest average value recorded since 2012. The highest was set at the end of last year at £2,026psf.

9.5%Annual growth in average £psf value

Average sales values were just over £1.9m this quarter. However, this was heavily skewed by the largest value sale for a single unit ever recorded in our patch; a three bedroom penthouse in one of Covent Garden’s most exclusive developments was exchanged for just over £8.5million, equating to £2,900psf: the second highest £psf value recorded for our patch.

Q2 2016 Sales snapshotTotal value of properties sold £59.1m

Average £psf £1,921

Average new build £psf £1,942

Average resale £psf £1,834

Highest £psf £2,900

Average sales value £1,906,380

Activity this quarter was dominated by new build units which accounted for 80% of sales, with values averaging £1,942psf. This compares with average values of £1,834psf across resale units. However, the resale market experienced the highest growth, with average values up 25% compared with the same period of 2015.

£8.5mHighest value sale this quarter

Reflecting the high average sales value, most sales this quarter were high value; there were no sales below £1,250psf compared with 10% for the same period last year and three-quarters of sales were above £1,750psf compared with only 45% in Q2 2015.

75%Proportion of sales above £1,750psf

The typical pattern of UK buyers dominating sales persisted in Q2, accounting for 43% of purchasers. These were followed by those from Hong Kong and China who accounted for a further 29%.

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West End values 2009 to present

CBRE Research, Q2 2016

6–7

Case study: The Colyer, Great Newport Street

The Colyer is a boutique collection of 14 luxury apartments located close to Covent Garden and Leicester Square. This historic building in London’s theatre district was once the site of Ken Colyer’s Studio 51 Jazz Club which hosted the likes of The Beatles, The Rolling Stones and Eric Clapton. The apartments have been lovingly crafted by Johnson Naylor and comprise a mix of studio, two and three beds.

CBRE are due to launch the completed development to the open market in the coming months, but demand has been so high that 40% of the apartments have already sold. Prices start from £950,000.

Sales forecast At the time of writing we are less than a month after the UK’s vote to leave the European Union. On balance we do not expect a significant impact on the market as a result of the referendum. We expect domestic demand to remain strong as the market continues to be underpinned by the favourable credit environment.

In addition, the Bank of England has reduced banks’ capital requirements. This has freed up approximately £150bn of capital, a portion of which could be directed into the mortgage market. The prospect of lower interest rates could also lead to a further boost on the demand side.

One of the main impacts of the vote has been the weakening of sterling. So we could see a pick-up in demand from overseas buyers in Q3 as they potentially take advantage of the relative discounts offered by a weaker currency.

Price range – Sales Q2 2016Q2 2015

Purchaser origin Q2 2016% Percentage

UK 43Hong Kong 19China 10Europe 10Singapore 10Africa 5Russia 5

Price range (£psf)

40

30

20

10

0

1000-12

50

<1000

1251

-1500

1501

-1750

1751

-2000

2001

-225

0

>2250


8–9

No. of bedrooms

Average rent (per week)

Annual change

Studio £374 0%

1 £582 5%

2 £908 16%

3 £1,828 27%

Lettings overview

On the lettings side of the business, the EU referendum had little impact on uptake in the second quarter of the year. Overall, the office agreed 85 tenancies over the quarter. Although this is slightly down from the same period last year, the difference is minimal (there were 95 tenancies agreed in Q2 2015) and there is no discernible decline in activity. In addition, at £69,150 per week, the total value of tenancies is 21% up on Q1 and 14% higher than the same period of 2015.

Rents in Q2 averaged £814pw reflecting several higher value units; 40% of tenancies were for over £750 per week in Q2 2016. This compares with 17% in the same period of 2015. The highest value rental this quarter was £84psf achieved for a three bedroom sub-penthouse in Fitzroy Place.

Q2 2016 Lettings snapshotTotal number of properties let 85

Total rental value of property let* £69,150

Average rental value per week £814

Average size of rental property 754 sq ft

Highest rental value achieved £84 psf

*Based on price per week

As per the typical cycle, the lettings team saw increased activity in Q2. This was driven by the international student market which contributed to a 14% rise in total lettings values over the year.

Across unit types, three bedroom apartments have achieved the highest annual increase. Average rents of £1,828pw this quarter are 27% higher than the same period of 2015. One and two bedroom apartments saw increases of 5% and 16% respectively.

Domestic tenants were not as active in Q2, accounting for 18% of tenancies compared with 37% in the first quarter. Conversely, European and Asian tenants accounted for 54% of tenancies this quarter, up from a third in Q1. This increase was mainly driven by overseas students, who typically dominate the second and third quarters in preparation for the start of the new academic year. Students accounted for 27% of lets this quarter, up from just 3% in Q1. All of our student tenants were from overseas, either from Europe or Asia.

14% Annual increase in total tenancy value

40%Proportion of tenancies over £750pw

10–11

Case study: The Colyer, Great Newport Street

We have chosen the same case study for sales and lettings this quarter to illustrate how both teams link-up across a single development.

CBRE conducted the development consultancy for the developer of this scheme, advising on the conversion of the building from offices to residential use. We were then instructed to sell the end units, three of which were sold off-plan to one of our existing clients, who bought bought two, two bedroom apartments and one studio apartment.

The client then instructed CBRE to let and manage the three units. On completion, we advised the client to utilise one of the two bed apartments as a show flat, advising on a particular furniture company to use in order to maximise appeal. The result was that the apartment went under offer at the full asking price after only one day of marketing, and demonstrates CBRE’s holistic client service.

Lettings forecast Both new build and re-let stock have performed well in Covent Garden and the surrounding area. This is despite a surge in rental supply, with investors buying into the many new developments across the area. These typically provide a range of leisure facilities and amenity space which are very appealing to tenants. The increase in newly refurbished stock has encouraged tenants to upgrade, thus slightly increasing our levels of older, re-let stock. Typically, these units have not performed as well in the past 6–12 months with achieved rents either level, or in some cases, slightly below passing rent in order to minimise any void periods.

Price range – Lettings Q2 2016Q2 2015

Tenant origin Q2 2016 Tenant occupation Q2 2016% Percentage % Percentage

Europe 34Asia 20UK 18Americas 13 Unknown 8Middle East 5Oceania 1Africa 1

Student 27Finance 24Tech/Media/Telecoms 13 Other 13Entertainment 5Retail/Fashion 5Unknown 4Serviced Apartment 4 Government 2Education 2Property 2

Price range (£ per week)

<300

301-

400

401-5

00

501-

600

600-750

751-1

000

1001

-1500

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f let

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15

25

20

30

35

10

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In summary, the West End, especially Covent Garden and Soho, are increasingly being referred to as the new prime market and our profile of tenants and rent increases are proving this quarter on quarter. Part of the reason for this is the high number of developments in the area which are being converted or refurbished to the highest of standards. We are looking forward to the next three months which are traditionally the busiest in terms of viewings and tenancies, largely driven by the international student market.

12–13

Property Management

CBRE has now centralised its property management department within our Henrietta House office. We have a large, dedicated team of property managers providing a professional service and peace of mind.

We have a great deal of experience with overseas investors who rely on us to fully manage their portfolio, and help them to understand the complexity of tenancy law and procedures. In addition, we provide a dedicated new build handover service, ensuring that any issues found when moving into a new build property are dealt with swiftly and efficiently.

Landlords are increasingly opting for a fully managed service as they often don’t have the time to dedicate to their tenants. As rents rise, so to do the expectations of the professional tenant and, with over 40 years of combined experience, our property management team can assure to meet these expectations. We provide a service that not only protects your relationship with your tenant but ensures that you are maximising your property investment.

Our statistics show that managed properties, on average, achieve a higher percentage of the market rent and a 50% shorter void period between tenancies. In addition, tenants of managed properties typically opt for a longer tenancy term and are more likely to renew.

To discuss our property management service further, please don’t hesitate to contact one of the team.

14–15

Rachel MasonSurveyor


Scott CabotAssociate Director


Ben KirtleySenior Sales Negotiator


Shaun MacnamaraSales Manager


Tom HaywardSenior Renewals Negotiator


Craig SimpsonAssociate Director


Andrew ChambersAssociate Director


Jonathan MyersSales Negotiator


Ian ParsonsSales Negotiator


Samuel AstonSales Negotiator


James BurrowsDirector


Sales

Rhonda ColeHead of Property Management


Amy WarringtonSenior Property Manager


Connall O’NeillClient Services Manager

T: +44 (0)20 7420 3031 E: connall.o’[email protected]

Luke MellorLettings Valuer


Vanesha PancalManagement Assistant

T: +44 (0) 20 7420 3004 E: [email protected]

Jennet SiebritsHead of Residential Research

T: +44 (0) 20 7182 2066 E: [email protected]

To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at: www.cbre.com/researchgateway

CBRE Limited confirms that information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt their accuracy, we have not verified them and make no guarantee, warranty or representation about them. It is your responsibility to confirm independently their accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE. Some images are computer generated images for indicative purposes only. ©2016 CBRE Ltd.

Development Consultancy

James MashiterSenior Surveyor


Lisa HollandsManaging Director


Guy PasseySenior Director


Jamie GunningExecutive Director


David JW SmithDirector


Charlie PhilipDirector


Lettings Property Management

Research

Client Services

Alie HortonAssociate Director


Mike KnowlesLettings Manager


Daniella Waterman-CollinsSenior Lettings Negotiator


Jarryd ReayLettings Negotiator


Laura DunneLettings Administrator


Lisa PriessLettings Administrator


Jonathan RogersLettings Negotiator


William PorrittLettings Negotiator


Alex EvagoraLettings Negotiator


west end residential our patch, our view q2 2016 · piccadilly circus. 4–5 sales overview ......

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