The second quarter didn’t pan out quite as we expected back in April, when expectations were erring towards an autumn rather than summer election and odds on a June reduction in the base rate were looking more favorable. 

Having a mid-year election behind us will likely have a positive impact on activity in the prime market in the second half of the year, but the higher proportion of discretionary sellers who can, and indeed did, wait for the election to take place have impacted activity levels in Q2.  Data from LonRes shows properties going under offer fell 18% in June and new instructions were down 8% annually too. 

The sales market across Prime Central London (PCL) followed usual seasonal patterns, with activity higher than Q1, but homes sold fell back marginally on 2023 levels. Activity rose in the lettings market, with the usual early summer rush adding to applicant numbers and absorbing some of the excess stock we’d seen enter the market earlier in the year.

July’s Labour victory brought much-needed political clarity, which combined with an improved economic outlook is expected to boost market confidence in the coming months. But for buyers in PCL uncertainty around key areas of government policy, particularly on taxation, still require further clarity.  Non-dom rules, which both Labour and the Conservatives had vowed to overhaul is just one.  Of course, this will only impact a small proportion of PCL buyers. But this, combined with the usual exodus to warmer climes in July and August may well mean we’ll need to wait until September to see what impact this will have on activity going forward.

Prime Central London Overview

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Sales Market

The latest figures from the JLL Prime Central London index reflect a softening in property values across all price bands in Q2, with the most significant declines in the lower price brackets. The upper end of the market remained relatively insulated due to a higher prevalence of cash buyers.

Sentiment and debt costs impacted on achieved prices in the second quarter, with the JLL PCL Index showing average values fell 5.2% annually. Stock levels have been creeping up since late 2022 and by the end of June 2024, the number of properties for sale reached almost 3,900. This is a 19% increase on levels a year prior, driven by both increases in houses and flats listed (+26% and +18% respectively).

Activity did pick up in Q2, with 16% more homes changing hands than in Q1 and just 5% fewer than in a busy second quarter last year. Indeed, comparing transactions in Q2 this year with the 10-year Q2 average shows 8% more sales. Activity remains higher at the upper end of the market too, with the amount spent at £5million+ in the first six months of 2024 14.8% higher than the 10-year H1 average.

Key highlights:

Market Activity: 4.9% fewer sales were recorded annually in Q2 2024, but despite short term challenges and the unexpected July election volumes remained 8% higher compared to the 10-year Q2 average.

Record spending at £10m+: Total spend at £10m+ hit a record £439 million for H1 2024, surpassing the previous high back in 2016.

Property Values: The JLL PCL Index showed a 5.2% fall in achieved prices, with a 2.4% decline from Q1 to Q2. Homes priced under £2 million saw the largest quarterly decline in values, down 3.7%.

Stock Levels: By the end of June 2024, the number of properties for sale increased by 19% annually, with 26% more houses and 18% more flats on the market compared with the same point a year earlier.

Discounts: Average discounts from asking prices eased from 10.3% in Q1 to 9.4% in Q2, reflecting more realistic vendor pricing.

Lettings Market

A steady uptick in properties on the market meant rental growth dropped back from double digit high 18 months ago to low single digits, rising 2.1% annually in Q2 2024. However, a rise in applicants means we are seeing much of this excess stock being taken up by tenants.

Quarterly, average rents rose 0.9% from Q1 to Q2 2024. While the lower end of the market continues to see high demand, we are beginning to see increased activity in the top end of the lettings market too. The number of properties let in Q2 up 12.8% annually and 14.3% higher than Q1.

Uncertainty leading up to the general election, alongside higher mortgage rates, means some prospective buyers have opted to rent instead, bolstering demand. Demand for houses rose in Q2, with a quarterly increase in rents of 2.4% (versus 0.6% for flats).

Key trends in Q2 included:

Rental Growth: Annual rental growth returned to more sustainable levels at 2.1%, with average rents rising 0.9% from Q1 to Q2 2024.

Stock and Demand: A steady increase in rental properties on the market was balanced by strong tenant demand. The number of homes let priced at £3,000 or more per week rose by 13.4% annually.

Market Dynamics: The ongoing uncertainty related to the general election and higher mortgage rates led some prospective buyers to rent instead, further bolstering demand in the rental market.

Outlook

Q2 2024 was a period of mixed outcomes for the Prime Central London market. While higher mortgage rates and political uncertainties impacted the lower end, the top-end market showed robust activity and record spending.

Elevated activity and strong buyer demand in PCL align with an expected improvement in economic conditions and enhanced buyer confidence. The anticipated reduction in the base rate and more favourable mortgage terms from major lenders should foster further competition and growth in the market.

At JLL we forecast PCL will be one of the best performing markets over the next five years. House prices are expected to remain flat in 2024 but see growth of 19.8% by 2028, for rents we expect annual growth of 4.5% in 2024, with rents expected to increase by 21.7% between 2024 and 2028.