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London Residential ReviewQ4 2019

The impact of Brexit on the sales market

Lettings activity surges

Finance costs remain ultra-low

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1 Price declines moderate as supply fallsAnnualised % change in listings

n New £1 million-plus listings in PCL n Annual price change in PCL (whole market)

2 Sales activity on an upwards trajectory in PCLTransactions between January and September, per Knight Frank office, rebased to 100 in January 2015

n PCL n POL

Source: Knight Frank Research / Rightmove Source: Knight Frank Research

11%

The increase in transactions carried

out by Knight Frank in PCL between

January and September

25%

The approximate discount available

in PCL for buyers denominated in a

range of overseas currencies since

June 2016

£55 billion

The accumulated available potential

spend of all prospective buyers

registered with Knight Frank in London

in Q3 2019

-3.9%

The decline in average price in PCL

in the year to September, the most

modest fall in a year

P R I M E LO N D O N SA L E S M A R K E T I N S I G H T Brexit has affected sentiment in prime London markets but other forces are driving demand, as Tom Bill explains

Political uncertainty continued to

dominate sentiment in prime London

residential markets in final months

of 2019.

By mid-October, there were signs

the EU and the UK were moving closer

to signing a withdrawal agreement.

However, irrespective of the

political backdrop, transaction

activity has been on an upwards

trajectory in PCL.

Knight Frank carried out 11% more

transactions in prime central London

between January and September

compared to last year. In prime outer

London, transaction volumes were

broadly flat compared to last year, as

figure 2 shows.

The trend is due to a combination

of factors that include the stamp

duty-related price adjustments and

the Sterling discount, which have had

a more pronounced effect in PCL.

Meanwhile, activity is also being

driven by a prolonged build-up of

demand and the ultra-low cost of

debt.

Prices have now declined by an

average of 14% over the last four years

in PCL, which more than compensates

for higher rates of stamp duty. When

combined with the effects of a weaker

Sterling, overall discounts of more

than 25% are available for buyers

denominated in a range of overseas

currencies compared to June 2016.

The ratio of new prospective

buyers to new property listings was

14 in September in prime central and

prime outer London, the highest level

in more than ten years, indicating

the strength of pent-up demand.

Meanwhile, the total available

potential spend of all prospective

buyers of existing homes registered

with Knight Frank in London rose to

£55 billion in Q3 2019.

At the same time, the number

of new listings above £1 million in

PCL declined 28% in the year to

September, as more vendors hesitated

due to Brexit-related uncertainty.

This imbalance between supply

and demand means the rate of price

declines has moderated, as figure 1

shows.

Average prices for existing

homes in PCL fell 3.9% in the year to

September 2019, the smallest decline

in 12 months. The 3.5% decline in

prime outer London was the most

modest decline since May 2018.

London has also reinforced

its position as the leading global

investment hub, extending its lead

as the largest global centre for

currency trading, according to the

Bank for International Settlements,

underlining its long-term credentials

as a dominant global finance hub,

irrespective of short-term political

turbulence.

"Irrespective of the political backdrop,

transaction activity has been on an upwards

trajectory"

TOM BILL

HEAD OF RESIDENTIAL RESEARCH

-30%

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Mar-18 Sep-18 Mar-19 Sep-19

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2015 2016 2017 2018 2019

1 A L D G AT E3 - M O N T H C H A N G E

S A L E S R E N T S

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7 K I N G S C R O S S3 - M O N T H C H A N G E

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2 6 H A M P S T E A D3 - M O N T H C H A N G E

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2 3 C L A P H A M3 - M O N T H C H A N G E

S A L E S R E N T S

13 SOUTH KENSINGTON3 - M O N T H C H A N G E

S A L E S R E N T S

6 K E N S I N G T O N3 - M O N T H C H A N G E

S A L E S R E N T S

2 B E L G R AV I A3 - M O N T H C H A N G E

S A L E S R E N T S

1 9 B AT T E R S E A3 - M O N T H C H A N G E

S A L E S R E N T S

8 K N I G H T S B R I D G E3 - M O N T H C H A N G E

S A L E S R E N T S

2 7 Q U E E N S PA R K3 - M O N T H C H A N G E

S A L E S R E N T S

2 4 D U L W I C H3 - M O N T H C H A N G E

S A L E S

1 4 S T J O H N ' S W O O D3 - M O N T H C H A N G E

S A L E S R E N T S

3 C H E L S E A3 - M O N T H C H A N G E

S A L E S R E N T S

2 0 B E L S I Z E PA R K3 - M O N T H C H A N G E

S A L E S R E N T S

9 M A R Y L E B O N E3 - M O N T H C H A N G E

S A L E S R E N T S

2 8 R I C H M O N D3 - M O N T H C H A N G E

S A L E S R E N T S

2 5 F U L H A M3 - M O N T H C H A N G E

S A L E S R E N T S

1 5 T O W E R B R I D G E3 - M O N T H C H A N G E

S A L E S R E N T S

4 B AY S W AT E R3 - M O N T H C H A N G E

S A L E S R E N T S

2 1 C A N A R Y W H A R F3 - M O N T H C H A N G E

S A L E S R E N T S

10 MAYFAIR3 - M O N T H C H A N G E

S A L E S R E N T S

2 9 W A N D S W O R T H3 - M O N T H C H A N G E

S A L E S

3 1 W I M B L E D O N3 - M O N T H C H A N G E

S A L E S R E N T S

1 6 V I C T O R I A3 - M O N T H C H A N G E

S A L E S R E N TS

5 I S L I N G T O N3 - M O N T H C H A N G E

S A L E S R E N T S

2 2 C H I S W I C K3 - M O N T H C H A N G E

S A L E S

1 1 N O T T I N G H I L L3 - M O N T H C H A N G E

S A L E S R E N T S

3 0 W A P P I N G3 - M O N T H C H A N G E

S A L E S R E N T S

3 2 W O O L W I C H3 - M O N T H C H A N G E

S A L E S R E N T S

P R I M E C E N T R A L L O N D O N S A L E S R E N TS 3 - M O N T H C H A N G E

3 - M O N T H C H A N G ES A L E S R E N TS

- 0.4 %

- 0.6 %

0.5 %

0.3 %P R I M E O U T E R L O N D O N

1 2 R I V E R S I D E3 - M O N T H C H A N G E

S A L E S R E N T S

P R I M E L O N D O N P R I C E A N D R E N T A L G R O W T H , S E P T E M B E R 2 0 1 9

26

27

520

714

1

21

32

24

23

29

31

18

22

25

6

114

9

16

28

3

13

19

28

12

1

303015

10

0.5 % - 0.3 %

0.0 % 1. 7 %

0.0 % 0.6 %

-1.3 % -1.0 %

-1. 2 % 0.6 %

1.1 % - 0. 2 %

0.0 % 1.1 %

- 0.6 % 0.5 %

- 0.9 % - 0.1 %

1.0 % 1. 2 %

-1.0 % - 0.1 %

-1.0 % 2 . 2 %

0.0 % 2 . 7 % - 0.4 % 0.0 %

- 0.9 % 0.0 %0. 2 % 0.1 %

0.6 % -1. 2 % - 0. 7 %- 0.3 % 0.1 % - 0.4 % 0.4 % 0.5 %-1.5 % 0.3 % 0.0 % - 0.1 % 1. 2 %

- 0.8 % 1.1 % -2 .6 % 0.3 % - 0.4 % - 0.4 %-1. 2 % - 0.1 % -1. 2 % 0.9 %0.5 % -1. 2 % 0. 7 %

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39%

The increase in the number of

tenancies agreed by Knight Frank in the

year to September

29%

The increase in the number of new

prospective tenants registering in the

year to September

3%

The annual increase in average rental

values between £250 and £500,

compared to a 0.1% decline across all

price brackets

-2.2%

The decline in average rental values

in PCL in the year to September 2019

between £1,500 and £2,000 per week,

highlighting the differing performance

by price band

P R I M E LO N D O N L E T T I N G S M A R K E T I N S I G H T Demand is surging in prime London rental markets, particularly in the lowest and highest price brackets, as Tom Bill explains

The lettings market in prime London

has continued to strengthen in

response to the backdrop of political

uncertainty in 2019.

The number of tenancies agreed

by Knight Frank in London increased

by 39% in the year to September on a

per office basis, which was the highest

such rise in more than ten years.

Irrespective of the large build-up of

demand in the sales market, political

uncertainty generated by Brexit has

prompted more people to rent. The

tenant fee ban, which was introduced

in June, has further driven demand by

reducing upfront costs.

The number of new prospective

tenants who registered in the year

to September 2019 increased by 29%

compared to the previous 12-month

period, which was also the highest

such rise in more than ten years.

Meanwhile, the number of

tenancies agreed below £1,000 per

week in PCL increased by 42% in the

year to September, the largest rise of

any price-bracket.

However, there are differing levels

of performance in different price

brackets.

For example, average rental values

between £250 and £500 per week

in PCL increased by 3% in the year

to September. This compared to an

average decline of 0.1% across all price

brackets.

Between £1,000 and £1,500 per

week in PCL, average rental values

declined 1.7% in the year to September

and between £1,500 and £2,000 the

drop was 2.2%. This relatively weaker

performance is related to the fact that

demand still remains more subdued

among the senior executives who are

typically more active between £1,000

and £5,000 per week.

Meanwhile, the number of

tenancies agreed above £5,000 per

week rose by 20% to 146 in the year

to September, whole market data

from LonRes shows, indicating how

demand in the highest price brackets

has strengthened in response to

political uncertainty.

Average rental values have been

broadly flat over the last 18 months

in PCL. As figure 3 shows, they have

strengthened moderately in the last

four months in response to lower

levels of stock as more property

owners looked to take advantage of a

relatively stronger sales market. This

trend will continue and maintain

upwards pressure on rental values

should political uncertainty begin to

lift.

"The political uncertainty generated

by Brexit has prompted more people to rent"

TOM BILL

HEAD OF RESIDENTIAL RESEARCH

3 Rental values strengthen as supply falls

n New rental listings in PCL (annualised % change) n Annual change in average PCL rental values

4 Demand and activity surgesAnnualised % change, per Knight Frank office

n New prospective tenants n Tenancies agreed

Source: Knight Frank Research Source: Knight Frank Research

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KNIG

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Overseas students will now have two

years to find a job in the UK after

they graduate, an increase from four

months. Student lets accounted for

21% of all London tenancies agreed by

Knight Frank in the 12 months to August

2019, up from 17% over the previous

year. “International students are already

a significant part of the market,” said

Gary Hall, acting head of lettings at

Knight Frank. “This change will only

help to strengthen that further.”

Five-year fixed-rate mortgage deals

have fallen below 1.6% for a maximum

60% loan-to-value ratio. Average

prices for fixed-rate mortgages have

declined due to UK political uncertainty

and global trade tensions. “We have

often thought that rates can’t go any

lower, but here we are again,” said

David Hall of Knight Frank Finance.

“Tighter regulations mean the main

criteria lenders can compete on is

price so it becomes a very competitive

market, which is something borrowers

need to be acutely aware of.”

The number of super-prime (£5,000+

per week) tenancies agreed in the

year to September 2019. “People are

watching and waiting for the political

situation to play out and some have

decided to rent,” said Tom Smith, head

of super-prime lettings at Knight Frank.

“People tell me they want to remain

flexible, not just because of Brexit but

because of their concerns around

global trade tensions and the state of

the world economy.”

Please get in touch with usIf you are looking to buy, sell or would

just like some property advice, we would

love to hear from you.

Tom Bill

Head of London Residential Research

+44 20 7861 1492

tom.bill@knightfrank.com

Tim Hyatt

Head of London Residential

+44 20 7861 5044

tim.hyatt@knightfrank.com

Knight Frank Research provides strategic advice, consultancy services and forecasting to a wide range of clients worldwide including developers, investors, funding organisations, corporate institutions and the public sector. All our clients recognise the need for expert independent advice customised to their specific needs. Important Notice: © Knight Frank LLP 2019 This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank LLP for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank LLP in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank LLP to the form and content within which it appears. Knight Frank LLP is a limited liability partnership registered in England with registered number OC305934. Our registered office is 55 Baker Street, London, W1U 8AN, where you may look at a list of members’ names.

Knight Frank Research Reports are available atknightfrank.com/research

Recent Publications

Demand for prime London property continues to be influenced by political events in 2019.

While the uncertainty surrounding Brexit and the stability of the government has led to hesitation in some sales markets, it has caused demand for super-prime (£5,000+ per week) lettings property to strengthen.

There were a total of 40 transactions agreed in this price bracket during the second quarter of the year, which was the highest figure for the period in more than seven years. Furthermore, there were 153 super-prime tenancies agreed in the year to June, the highest annual total over the same period.

“People are watching and waiting for the political situation to play out and some have decided to rent,” said Tom Smith, head of super-prime lettings at Knight Frank. “People tell me they want to remain flexible, not just because of Brexit but because of their concerns around global trade tensions and the state of the world economy.”

Demand has increased in areas like Notting Hill and St John’s Wood, says Tom, as figure 3 shows. “Demand in both areas is driven by the quality of the schools and they have been

particularly popular among US tenants. The weakening pound means overseas tenants have been able to increase their budgets.”

A tenant denominated in US dollars with a budget of £5,000 per week has seen this grow to the equivalent of more than £6,000 since the EU referendum, as figure 1 shows.

The emergence of high-quality super-prime developments has also helped drive tenants into areas like Mayfair, says Tom.

However, the supply of super-prime new-build properties is tightening, as the whole-market data in figure 4 shows. The number of new super-prime lettings listings declined to 209 in the second quarter of this year compared to 284 a year ago.

“The shortage of supply, particularly for the most in-demand new-build developments, means there can be a premium for the rental values paid,” says Tom. “There are several examples where this has pushed the rental yield to in excess of 4% in the best schemes, which is high by the standards of prime central London.”

London’s super-prime lettings market continues to benefit from political and global economic uncertainty, while the spending power of overseas tenants rises, as Tom Smith tells Tom Bill

Elm Park Road, guide price £10,000 per week

Upper Phillimore Gardens, guide price £25,000 per week

LONDON SUPER-PRIME LETTINGS INSIGHT AUTUMN 2019

FIGURE 2 London super-prime lettings volumes and achieved rental values

FIGURE 1 The rising spending power of US tenants How the equivalent of £5,000 in June 2016 has

changed over time for US$ denominated tenants

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Total Transactions Average weekly rental value Maximum weekly rental value

Source: Knight Frank Research / LonResSource: Knight Frank Research / LonRes

Tom Smith Head of Super-Prime Lettings tom.smith@knightfrank.com +44 20 7881 7730

Please get in touchIf you’re thinking of letting your property, renting in London or would just like some property advice, please do get in touch, we’d love to help

£5,000

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Prime London Sales IndexSeptember 2019

PRIME CENTRAL

LOND ON

PRIME OUTER

LOND ON

PRIME CENTRAL LONDON INDEX

5,551.3

PRIME OUTER LONDON INDEX

266. 2

ANNUAL CHANGE

-3.9%QUARTERLY CHANGE

-0.4%MONTHLY CHANGE

-0.1%

ANNUAL CHANGE

-3.5%QUARTERLY CHANGE

-0.6%MONTHLY CHANGE

-0. 2%

Figure 1 — The ratio of new prospective

buyers to new property listings climbed

to 11.4 in August across prime central

and prime outer London, Knight Frank

data shows. This was the highest level

in more than ten years and reflects the

fact that while many buyers are primed

to transact, the political uncertainty

has caused some potential vendors to

hesitate.

Figure 2 — Despite the Brexit-related

political uncertainty, the number of

transactions in prime central London

has risen in 2019. In the six months to

August, Knight Frank carried out 13%

more transactions than the same period

last year. It was the highest figure over

the equivalent period since 2014.

Figure 3 — The level of viewings over the

summer was higher than it has been in

more than five years, which underlines

the current strength of demand. There

were 16% more viewings over July and

August than the same period last year

as buyers respond to price adjustments

and, in the case of overseas buyers, the

weakness of the pound.

The prime London sales indices are based on repeat valuations ofsecond-hand stock and do not include new-build property, althoughunits from completed developments are included over time.

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earch

1 Demand grows vs supply

n Ratio of new prospective buyers / new listings, PCL and POL

Source: Knight Frank Research

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4

6

8

10

12

Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19

Ratio

2 Transactions rise in PCLNumber of exchanges from March to August (rebased to 100 in 2015)

3 Summer demand highest in five yearsViewings per office, PCL and POL, rebased to 100 in July 2014

n July n August

Source: Knight Frank Research Source: Knight Frank Research

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