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Super-Prime Time

Super-Prime Time

14.01.20

With a growing number of would-be buyers turning to luxury rentals while they wait out political and economic uncertainty, the capital’s super-prime rentals market is gathering pace. By Tania Jacobs

The UK economy is used to dealing with financial peaks and troughs and the residential real estate market is no exception. Having experienced the most disrupted 10-year property cycle on record, Brexit uncertainty is merely one more challenge in this already complex sector. One area bucking the trend, however, is the super prime rentals market, where tenants in London are paying upwards of £5,000 or more per week for a home.

During the first four months of 2019, 42 super-prime London rentals found tenants, up 27% year-on-year, according to a report from Knight Frank. In the year through April, 122 super-prime tenancies were agreed, on a par with the level achieved a year earlier.

According to Tom Smith, Knight Frank’s head of super-prime lettings, demand is particularly strong at the upper echelons of the market, with no fewer than 30 tenancies agreed at £10,000 or more per week during the first quarter of 2019, compared with 20 such transactions in the corresponding period 12 months earlier.

He comments: “This rise, at a time when the high-end sales market is flagging, reflects the fact that many people are deterred by the increased stamp duty, as well as ongoing economic and political uncertainty following on from the start of Brexit talks. Tenants who are able to rent in the short-term and buy when they sense that a greater degree of stability has returned are more than happy to do so.”

According to LonRes, the average sale price in the £2m-£5m bracket fell by 8.4% in the second quarter of 2019 compared with a year earlier. Prices of super-prime properties – valued at more than £5m meanwhile - dropped 3.2%.

Adds Marcus Dixon, LonRes’s head of research: “Those who considered buying can now rent for four or more years for the equivalent cost of the stamp duty on a comparable home, leaving them in a good position to buy if and when the time is right.

The type of properties these purchasers are looking for could be valued at £30m or more. The stamp duty alone on that is near £5m – that’s the equivalent of five years’ rent even at £20,000 a week. And you save on all the upkeep and maintenance costs, as they become the owner’s responsibility.”

Georgina Bartlett, a director of Savills’ prime central London lettings team has experienced this uplift at first hand - letting several premium properties using live 360-degree tours via WhatsApp.

“Wealthy clients based overseas greatly value their time. Whereas previously they may have sent their personal assistants or appointed relocation consultants to view potential homes on their behalf – they’re now making the most of the latest technological advances and viewing from afar.”

Top of the ultra-prime rentals market is dominated by homes in Knightsbridge, Mayfair, Belgravia and for families and security conscious foreign applicants, Hampstead. Apartments in these locations can typically command between £10,000 – £30,000 a week.

Buying agent, Simon Baxter explains: “The sheer flexibility renting offers is a further incentive - with few upfront costs compared to buying. Some clients are looking for a temporary home while they explore what’s on the market and review potential locations. It can also be a case of keeping things simple – not being tied down to the upkeep of yet another property when they already own several homes around the globe.”

As to what UHNW renters are looking for: “It’s less about square footage and more about liveability and home comforts,” adds Baxter: “Furniture, fixtures and fittings and practical aspects such as storage and bespoke appliances are key. In some instances, landlords will even make specific changes to meet a tenant’s requirements. It’s all about delivering a turn-key solution that will invariably also include housekeeping and access to concierge services as core elements of the tenancy agreement.”

Homes for rent in this deluxe category are also expanding their location reach. This autumn saw the launch of London’s first super-prime build-to-rent scheme: three luxury homes on Blenheim Terrace, each with five en-suite bedrooms, walk-in dressing rooms and rooftop terraces and costing £5,500 per week. One has already been let to an investment bank for use by an executive relocating from the US. The area has a family-friendly vibe, with a revitalised high street that now includes The Ivy, The Good Life Eatery and Soutine.

A sub-3,000 square foot house will set buyers back at least £3m, while four-bed properties start at £4.5m. Ideal as family homes as they have large gardens and many of the streets have their own private security, larger detached homes of 10,000 square foot plus can fetch up to £20m.

Prime tenants rent their properties for, on average, between 12 and 33 months, and are often asked to pay large lump sums at the outset for the best of them. “Overseas tenants with no track record or previous landlord references often have to pay the entire rental term of tens of thousands of pounds upfront,” says Baxter. “Students will pay an advance of between six and twelve months’ rent, while professional individuals pay lump sums for simplicity – many don’t want the hassle of monthly payments.”

Interestingly-while the volume of prime rentals has increased in London, prime rents are conversely slowing in cities around the world; a trend which industry watchers attribute to a general lack of economic confidence, plus the increase in stock attributable to the flood of accidental landlords joining the sector. One potential threat in London however, adds Baxter, is a drop in high-level corporate lets as companies tighten belts and – perhaps – begin to look towards other European cities in the aftermath of Brexit.

For Andrew Hubbard of bespoke West London agency Domus Nova, this is unlikely to be a problem: “Vendors have become far more receptive to corporate letting, especially when desired sale premiums are unachievable. Their properties are often part of a large portfolio, making secure tenancies key when managing their assets.

He continues: For blue-chip employees who are based in London but are perhaps only there three to six months of the year – a rental is the obvious option.” Knight Frank’s regional partner David Mumby also believes there will be even more activity in this segment: “If a landlord can reconfigure an existing space and fit out the property to the right kind of ‘corporate let’ specification, it can be the difference between £3,000 and £6,000 per week.”

In one of the fastest super-prime lettings deals ever achieved in Mayfair, Wetherell have let a 1,593 square foot two-bedroom dressed residence in Clarges Mayfair, for £7,500 per week; the deal completed in just 24 hours to an international ‘Milllennial tenant’.

Peter Wetherell, Chief Executive of Wetherell says: “The young professional demographic has become the dominant sector within this district for large deals over the last 24 months. This is the third super-prime contract that Wetherell’s lettings department has completed in the last month where the agreement has been sealed within 48 hours.”

Designed by architects Squire & Partners, who have worked on Buckingham Palace, Clarges Mayfair overlooks Green Park and is Mayfair’s answer to ‘One Hyde Park’. Complete with three basement levels, the nine storey Portland stone façade has hand-carved stone columns, floor-to-ceiling windows and bronze balconies and contains 34 residences with interior design by award winning Martin Kemp Designs the design house specialising in ultra-prime residences, private jets and super-yachts with clients including Tom Ford, Roman Abramovich and Rolls Royce. Adds Wetherell: “Two years ago, agency revenue was derived 70% from established sales and new developments, with 30% generated from our lettings department. Now we’re forecasting 50% of revenue to be derived from our expanding lettings department.”

Super Prime – Fast Facts

  • Super-prime rentals are properties being let from £5,000 per week, up to £40,000+ per week
  • Over 60% born overseas and 55% of young, single professionals choose to privately rent rather than buy in PCL
  • Millennials comprise a high proportion of private tenants in Mayfair, St James’s, Belgravia, Knightsbridge and Marylebone
  • Compared to the 1950s, Mayfair, St James’s and Knightsbridge were dominated by owner occupiers aged between 50 to 70

 

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