Positive Forecast For Prime Central London Property Market

The spring outlook is more promising for sales and lettings in the prime central London property markets with stamp duty impact now largely absorbed, according to the latest analysis.

Both markets saw declines in 2016 but with price adjustments from stamp duty changes now largely taken up, prices are expected to remain steady while activity increases in 2017, says the report from real estate firm JLL.

It points out that in the final quarter of 2016 the number of transactions increased by 36% compared with the previous quarter and the number of domestic buyers increased while the weak pound spurred a number of international purchasers back into the market.

On average prices fell again in the fourth quarter of the year but overall price declines have diminished during the course of 2016. The average price fall of just 0.1% in the fourth quarter was a slight improvement on the 0.2% drop in third quarter and a notable change from the 1.1% and 0.9% falls seen in the first and second quarters respectively.

Indeed, the report explains that the fourth quarter was the first quarter in 2016 that prices in the sub £2 million market did not fall. Prices also remained broadly flat in the £2 million to £5 million price bracket during the final quarter of the year.

JLL expect transaction levels to be notably higher in 2017 compared with 2016 and predict that prices will remain broadly flat during the year ahead.

In the lettings market average rental values across prime central London fell by 3.1% during the fourth quarter of 2016, the fourth consecutive quarterly fall and this has left rental values 8.6% lower during the course of 2016.

The 3.1% was greater than the 1.9% and 2.3% falls seen in the second and third quarter respectively, but importantly JLL do not expect the trend of escalating declines to continue and the report says that rental values have adjusted to new levels to reflect the upper hand now held by tenants while much of the overhang of properties on the market has dwindled.

JLL forecast that rental values will remain stable during 2017 before pushing higher from 2018. Higher underlying consumer price inflation is likely to put some upward pressure on rents.

‘The fourth quarter saw a marked upturn in transactional volume throughout prime central London with some notable high value sales. Whilst some values have undoubtedly slipped throughout 2016, it was interesting to note that exceptional properties were still commanding high rates per square foot and on a similar level with 2014 peak values,’ said Richard Barber, director of sales of Residential Agency at JLL.

‘Much of this activity can be accounted for by the weakness of sterling and stronger post-referendum sentiment. Whilst this is encouraging going forward, the market will still be mindful of potential external influences such as the road towards a hard Brexit during the course of 2017. Nevertheless, both prime central London demand and sentiment now appear to be stronger,’ he added.

According to Lucy Morton, head of agency at JLL, in the lettings market demand and activity remained robust during the second half of 2016. ‘Importantly, the imbalance between supply and demand was corrected by the end of the year with much of the excess stock soaked up. There continues to be strong demand for apartments in new developments as tenants buy into the lifestyle of concierge, gyms, business facilities and smart living with easy access to the City,’ she explained.

‘Overall, fewer overseas families moved to London with companies in 2016 compared with previous years as organisations preferred to house their senior directors in high end one and two bedroom apartments to use more as a pied-à-terre while leaving their families at home. There was another year on year increase in demand from high net worth international students last year and we anticipate this will increase again during 2017,’ she added.