“First-time buyers in our market are… - Knight Frank

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LONDON MARKET COMMENT ANALYSING THE london MARKET While demand is strong and values in the ascendancy, London’s prime residential sales and lettings markets continue to suffer from a frustrating supply shortage, Liam Bailey, head of residential research at Knight Frank, explains. The headlines are fairly clear: rents are up, prices have recovered from last autumn’s hiatus, demand from tenants and buyers is healthy, but supply everywhere is stubbornly low. Behind the headlines the picture is more complex, with investment requirements and international demand becoming more critical than ever in determining the direction of the market. International buyers, the saviour of the market in early 2009, have now become omnipresent. The desire of Asian, European and Middle Eastern investors to buy in London has been soaking up a huge slice of the new-build market and overseas demand is now the biggest single contributor to price growth. The key issue in the rental sector is that the new supply of investment stock trickling into the market, funded it has to be said by UK as well as international buyers, is only slowly countering growing rental demand. Aided by London’s service sector recovery, demand for rental accommodation by new or relocating workers is pushing rents higher. 4 LOCAL VIEW % 8 6 4 2 0 -2 -4 -6 -8 -10 Dec 07 Market performance London’s housing market has continued to follow a very different path to that seen in the wider UK market. While prices began to slip in London last autumn, just as the mortgage market and the economy began to weaken, a notable turnaround in the four months to the end of February led prices to rise by 4%. The reasons for this recovery, and the divergence of the market from national trends, can be partially ascribed to low stock volumes, and a desire from buyers over recent months to buy now and capitalise on the opportunity to fix their borrowing costs at very low rates. As we note above, the most important driver behind price growth has been growing demand for London property from international buyers. Over the last 12 months the proportion of £2m+ sales to non-UK buyers hit 52%. The figure was 64% for properties priced above £5m. “ Mar 08 Prime central London rents and prices, quarterly change Jun 08 Sep 08 Dec 08 Mar 09 Jun 09 as the mortgage market and the economy began to weaken, a notable turnaround in the four months to the end of February led prices to rise by 4%. Sep 09 Dec 09 Mar 10 ” Jun 10 Rents Prices Sep 10 Dec 10 Mar 11
Rental market recovery Firm evidence of the ongoing strength of London’s prime rental market is presented by the fact that rents rose by more than 20% in the 18 months to March this year. This reflects a huge improvement since mid-2009, when the market was suffering from a significant oversupply of properties and weak tenant demand. Rents now sit marginally below their March 2008 peak level and it is our view that this benchmark will be exceeded in 2011. Rental growth of up to 10% could be a possibility. “ Rents now sit marginally below their March 2008 peak level. ” Aiding this growth is the fact that the volume of available rental properties has fallen considerably, by almost 20% over the 12 months to March this year, compared to the previous year. Demand from tenants has held relatively firm, set against this weakening of supply. This resilience could be explained by the fact that employment conditions in central London are much healthier than they were 18 or even 12 months ago. Morgan McKinley, the City recruiter, reported that job vacancies increased by 27% over the past year. The shortage in the number of rental properties available signifies that a large number of prospective buyers are still locked out of owner-occupation and that renting is their only alternative. Indeed, while central London sales are outperforming the UK market, the number of sales in the capital over the past 12 months have been a third lower than they were in 2007. 140 120 100 80 60 40 20 0 Prime central London sales stock (indexed to 100 from Jan 2008 to date) Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Oct 09 Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 120 100 80 60 40 20 Jan 08 Prime central London (PCL) sales applicant volumes and Morgan McKinley new job vacancies (both indexed to 100 from Jan 2008 to date) Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Oct 09 Jan 10 Apr 10 Jul 10 PCL new applicants Morgan McKinley new jobs Oct 10 Jan 11 LOCAL VIEW 5
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