Recovery across prime central London has begun

Differing Demand

London Calling

Continued recovery

Since the capital has started to come back to life, prime central London house prices have been rising at a steady pace, following weaker growth throughout much of the pandemic. But a more significant recovery has been delayed as fewer than expected international buyers have so far re-entered the market. Values increased by 3.3% in the year to June, the highest annual growth since September 2014.

However, prime prices remain -17.6% below their 2014 peak, so still represent an opportunity for buyers. In evidence that some are already making the most of this relative value, there were 294 transactions for £5m+ properties in London during the first half of 2022, the strongest half year since our records began in 2006.

But uncertainty lingers

Geopolitical uncertainty has led to caution among some ultra high net worth (UHNW) buyers. Prospective purchasers of central London property hold a diverse range of investments and business interests, so weaker stock markets and a slowdown in the global economy are likely to reduce their spending power. And although these markets are less reliant on mortgage debt, they won’t be completely immune to the effects of higher interest rates.

The weakness of sterling (particularly relative to the US dollar, given the more hawkish approach to interest rates taken by the Federal Reserve compared to the Bank of England) also creates an opportunity for those buying in foreign currencies. Furthermore, high oil prices continue to underpin demand from the Middle East, historically a key source of demand.

So overall, prime residential property in central London remains an attractive asset for wealth preservation and continues to offer capital growth prospects. Its reputation as a secure investment on a world stage remains and it is also viewed as a good hedge against inflation by many buyers.

Demand beginning to pick up

So far in 2022, our prime central London sales offices have registered more than one and a half times the number of new applicants than the average for the first eight months in 2018 and 2019.

Against strong demand, stock levels – particularly of best-in-class properties – remain low. This presents an opportunity for vendors who may be sitting on the fence, even more so once expected pent-up demand from new overseas buyers returns to the market.

Prime rental values have increased sharply – by 14.0% in the year to June – clear evidence that occupier demand across central London remains strong. The return of key tenant groups, such as international students and corporate relocators, chasing a minimal amount of stock has led to this rapid rise in rents.

Strong demand from try before you buy tenants, those settling into a central London district before committing to a purchase, also gives confidence for the sales market going forward.

So where does that leave us going forward?

Requirements to register beneficial ownership of homes held in offshore corporate vehicles could temper the desirability of  London as a safe haven for super prime property investment among some buyers, though the changes have been trailed for some time. Offshore corporate vehicles have historically been used to hold UK property for many different reasons. The tax benefits of doing so had largely passed and, for many, the anonymity they provided was largely for convenience.

Meanwhile, central London’s potential buyer base continues to expand. The number of global UHNWIs rose by 9.6% to 220,000 in 2021, according to Capgemini, that number being expected to rise to 344,000 by 2025. 

Recovery across prime central London has begun, and demand levels in recent months suggest this is likely to accelerate over the medium term. Stronger levels of price growth are anticipated once more competition from high net worth foreign investors returns.

Longer term, the relative value and the prospects for global wealth generation – despite any short-term headwinds – give us confidence in central London’s long-term outlook and its ability to outperform the wider London and UK housing markets.

Differing demand

Growth across prime central London hasn’t been uniform. Much like the prime markets across the rest of London, and indeed the UK, demand has been driven by those looking for more space. As such, houses have outperformed, with growth of 4.1% since March 2020, compared to 1.3% for flats.

More specifically, larger houses (those with six or more bedrooms) have seen growth exceed 5% over the same period, while those with a medium or large garden have risen by 7.4%.

This, in turn, means local areas such as Notting Hill, Holland Park and Kensington, popular among domestic and resident non-dom buyers, have been the top performers over this period, as many people chose to upsize and recommit to London living.

By contrast, areas which tend to be more dominated by flats and those that are more reliant on international buyers, such as Belgravia, Knightsbridge and Mayfair, have lagged behind. However, now that demand for centrally located flats has started to improve, these markets have greater capacity for growth in the short term.

London calling

View from the private office

The amount of investment coming into London is extraordinary. Property is a traditional hedge against inflation and sterling is weak.

But those are not the only reasons why people are putting money into prime central London homes this season. At present, London looks to be good value on a historical basis, a good mediumto long-term way to put cash to use.

Other factors are also drawing buyers here. Many are relocating because they wish to educate their young or student-age children here; others because they are disturbed by the levels of crime and taxation in their own countries, or certain states of America.

For the members of the West Coast tech community, the pandemic may have permanently changed working patterns. These executives can envisage running their businesses from London; they are prepared to confront the difficulties arising from any time differences.

Paris would be one alternative, but some clients have mentioned that they do not perceive the city to be as safe as London. Some of the individuals who have bought through us considered Switzerland, but London wins over for its lifestyle.

The enduring appeal of London is illustrated by the deals we did over the summer. Hedge fund and private equity bosses may be worried about recession. But they still put their money into houses in Chelsea and Notting Hill, underlining how the pandemic has put quality of life at the top of people’s priorities.

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