JLL Residential

Prime central London sales and lettings market overview

London, 8th February 2017

It is hardly an understatement to say that many people (particularly those in property) are glad to wave goodbye to the tumultuous year that was 2016. The market reeled throughout the year from the damaging effects of Stamp Duty Land Tax, the unforeseen decision to 'Brexit', the struggle for the leadership of the Conservative party and the election of Donald Trump as the President of the United States. Whilst the serving of Article 50 in spring 2017 may hang over the economy in general, there is increased optimism within the property market going in to 2017. Much of this optimism is predicated on the performance of the market in the last quarter of 2016, which saw an uplift in high value transactions. Indeed Lonres, our consistent bellwether of the prime central London market, showed that transaction levels increased by nearly 20% in Q4 over quarters 2 and 3.

At JLL we noticed a sea-change in sentiment when we returned in September and this was borne out by some high level transactions during Q4. We achieved over £2,600 psf for an unmodernised mews house 100 meters from Harrods, sold a double fronted house in a Knightsbridge Square nearby and achieved £2,878 psf for the sale of one of the penthouses at 375 Kensington High Street. This development has proved to be a continued success for our Kensington office based within the scheme and they report exceptional interest from the Middle East and an average rate per foot of £1,775 being achieved throughout the year. This success in Kensington should be continued within the new developments at 21 Young Street W8 and Logan Place W8 which will be coming on stream this year.

Whilst it is bold to predict market movements less than five weeks into the New Year, it is heartening to see the continued strength of the stock market, much of which is predicated on the weakness of the Pound and the predominance of companies within the FTSE 100 where income streams are dollar pegged. With Trump’s imminent inauguration and his pledges for increased spending on infrastructure projects, I would expect the dollar to remain strong against Sterling and UK interest rates to remain low. With this in mind, we would expect to see London property looking an attractive long-term proposition for purchasers whose incomes are dollar based, particularly when coupled with the diminution in capital values which we have seen through 2016.

It is with this renewed optimism that we are pleased to announce the opening of our new Chelsea office located at 2 Cale Street. We have been operating within the area (as WA Ellis) for nearly 150 years so we can be confident in saying that we know the area 'like the back of our hands'.

With the vast experience of WA Ellis combining with the global reach and expertise of JLL in all facets of the property market, we want everyone who comes into contact with us to go away thinking they have found the best. It is this level of excellence in all matters property for which we strive.
The lettings market has substantially changed in the last 10 years. Renting was once deemed the poor relation to buying, but now, we see High Net Worth individuals opting to rent as a lifestyle choice and developments being created to satisfy the discerning tenant. Despite 2016 being rather a tumultuous year, the lettings market in London remained robust, and we anticipate a strong market for 2017.

The changes to Stamp Duty introduced in December 2014 have had a significant effect at the top end of the sales market, with many would-be HNW buyers choosing to rent rather than pay hundreds of thousands in Stamp Duty, and families choosing to let their properties and rent, rather than sell and buy. This way, they keep their foot on the housing ladder but don’t have to pay the significant SDLT costs.

The biggest demand from families relocating to or within London tends to be between April and June as they want to find a property and settle in before the new September school term. From June to August, the HNW overseas students are in full force, securing their tenancies before the university terms start. We saw a 10% increase in HNW students year on year from 2015 to 2016 and expect the same this year as London’s top universities attract international students from countries such as China, India, The Middle East and Russia. We haven’t noticed a drop in student numbers since government changes to immigration rules for international students.

Despite concerns over the effect of Brexit, the corporate relocations market is still active and tenant demand is high. However, we are seeing a change in demand dynamics. Historically, firms tended to relocate entire families and seek longer term family accommodation to meet their needs. Interestingly, now they are tending to rent one or two high quality bedroom pied-a-terres or short term serviced apartments for senior executives so they can fly in when needed or attend meetings via video conference call as opposed to completely relocating their families to London. There is also a drive from the City to recruit UK based employees and as such, our City and Canary Wharf lettings teams have seen a higher number of tenants moving in from the outskirts of London, or other areas of the UK. We expect to see a rise in demand from corporate tenants into Nine Elms, with Apple moving its UK headquarters to Battersea Power Station and the American Embassy relocating to Nine Elms later this year. Our Nine Elms office is already seeing an increase in demand to the area.

The demand for high-end rental accommodation has meant that whole schemes are being designed to create a luxury lifestyle and efficient living. These developments offer an array of facilities including private gyms, business facilities and parking as well as concierge services. We are advising on and marketing many of the best developments being launched onto the lettings market in London.

Outside of Prime Central London and the City, we’re seeing a swathe of corporate and professional tenants heading East to Stratford. The area has undergone huge investment and regeneration since the 2012 Olympics and has become a desirable place to live with new developments such as Glasshouse Gardens, Stratosphere and Stratford Central providing first class accommodation and ease of access to the financial centres in the city. A typical two bed apartment in Stratford starts at £500 per week compared to a two bedroom apartment in Canary Wharf from £620 per week.

Overall in 2017, we expect transactions to increase, although Prime Central London rents are likely to remain stable, with increases in line with inflation. While there is strong demand, the supply and demand pendulum has swung, so landlords need to ensure their properties are presented in pristine condition in order to maximise rents and minimise void periods.

While the government has dampened the enthusiasm of buy-to-let investors, we strongly believe that the London property market is a good long-term investment. It's essential to seek expertise and our team are exceptionally well placed to provide advice on where the demand is from tenants, and which developments will provide a good return on investment.