Carter Jonas Prime Central London Residential Report
Date of Article
Dec 20 2011

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Despite the growing economic gloom, the Prime Central London residential market has continued to shine in 2011 and our forecast indicates another prosperous year ahead.

In contrast, the lettings market has witnessed a more subdued latter half of 2011 and activity is expected to remain restrained over the Christmas period. However, this downturn is expected to be relatively short lived and activity is forecast to improve moving into Spring 2012.

Sales
The sales market for Prime Central London (PCL) residential properties has continued to strengthen during 2011, despite the downward trend in the overall UK housing market and general economic gloom.

Prices are now above 2007 levels following an 8 per cent increase so far this year, and are forecast to peak at 10 per cent by year-end for the best quality properties. The market has increasingly favoured buyers, and only properties at the top end of the market are achieving these levels.

An acute shortage of very high quality homes continues while demand has remained generally stable. In some cases, there has been an increase in demand thanks to favourable exchange rates and foreign investors viewing London as a safe haven.

Overseas buyers account for 68 per cent of purchasers to date in 2011, with Middle Eastern and Russian buyers being the most active and Indian investors beginning to enter the market.

The sales market for properties valued at up to £2 million has experienced a notable increase in activity, mainly due to purchasers being able to fund cash transactions. The £8 million+ market has also enjoyed a healthy year, with high-end properties selling promptly and above guide price in some cases.

However, the £2-£8 million sector has seen a slowdown throughout the year, principally because of the uncertainty within the financial services industry which traditionally provides the bulk of the buyers in this price bracket. This hiatus is expected to continue for the foreseeable future.

Overall, the Central London residential sales market is expected to continue to benefit from these buoyant conditions for some time, as foreign investors and continued low interest rates contribute to a predicted 5 per cent growth for 2012. The uncertainty surrounding the Eurozone may have a negative effect in the short term, but is not forecast to depress the market as a whole.


Lettings
The first half of 2011 proved healthy for the Central London lettings market as rents increased by 12 per cent from their mid-2010 levels. However, the market has remained sluggish since the summer and the number of enquiries is down 19 per cent compared to August.

The main cause of the slowdown is thought to be a mismatch between landlords’ expectations and tenants’ budgets. The result is likely to be an increase in supply in the early part of 2012 which will restrain or lower rents by 5-7 per cent for the first six months. But rents will still be significantly higher than their mid-2010 levels following sharp rises from 2009.

Because of the major increases since 2009, many tenants are choosing to stay put and renegotiate rents down to below headline rates. Therefore, the supply of good quality properties remains restrained, although likely to increase during early 2012.

The downturn in lettings is forecast to be relatively short-lived and activity levels are expected to recover by the spring of 2012. Demand will rise thanks to European tenants attracted by the UK’s comparative stability as well as the flexibility of short lets. The London Olympics will also provide a significant boost to demand in 2012, with rents expected to rise by up to 5 per cent from the middle of year.