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RESIDENTIAL RESEARCH
SUPER-PRIME MARKET INSIGHT SUMMER 2019
2
Brexit-related uncertainty has curbed trading activity across all UK residential markets over the last 12 months. While London’s super-prime (£10 million-plus) price bracket is no exception, it would be too simplistic to view this particular market entirely through the prism of UK politics.
First, the demand drivers are more numerous and complex. More wealth is being created in the world than ever before and it continues to move across borders, as our Wealth Report this year found.
Combined with the fact that there are more ultra-high net worth individuals based in London than in any other global city, and that they have a growing propensity to invest in real assets, it is perhaps not surprising that last year saw the highest number of £20 million-plus deals in London (38) since 2014.
Indeed, the total volume and value of transactions above £20 million has been on a broad upwards trajectory over the last nine months, as figure 3 shows.
Overall, there were 109 transactions above £10 million in the year to January 2019, a 19% decline compared to 134 over the previous 12-month period. Meanwhile, the total value of transactions decreased by a smaller figure of 11% over the same period, reflecting the uplift in activity in the higher price brackets.
Notting Hill and Mayfair are the two markets where transaction volumes grew over the same period. While demand in Notting Hill has grown due to the extent of price adjustments in the area and its needs-driven buyer base, Mayfair has benefitted from a high-quality new-build pipeline, as figure 6 shows.
More broadly, the weakness of the pound has sustained demand. The effective discounts available for a range of overseas currencies since the EU referendum are similar to those seen in the 12 months following the collapse of Lehman Brothers, as figure 5 shows.
The second factor that needs to be understood when evaluating the performance of the super-prime market is that pricing has had less far to fall due to its characteristics as a more thinly-traded and discretionary market. This fact, which means previous price increases have been less steep (see figure 2 right), explains why an annual decline of 2.5% in April was half the PCL average.
SUPER-PRIME MARKET INSIGHT Underlying demand for super-prime property remains resilient, as Tom Bill explains
SUPER-PRIME INSIGHT 2019 RESIDENTIAL RESEARCH
London CityAirport
FIGURE 1 Super-prime map of London £10 million-plus sales, 12 months to April 2019
FIGURE 2 Total trough-to-peak price rise (March 2009 to August 2015)
Total number of sales
Regent’s Park
Hyde Park
Number of sales by value
£10m-£20m £20m-£30m £30m+
3
3
1
8
5
2
2 1
1
1
11
5
6
SW10 | £73m
SW3 | £173m
SW7 | £83m
W1 Marylebone | £25m
W1 Mayfair | £374m
W11 | £193m
W14 | £28m
W2 | £51m
W8 | £94m
W9 | £19m
SW1 | £585m
W1B | £45m
W1T | £11m
WC2H | £13m
NW8 | £108m
76%
48%
NW3 | £34mTotal Value of Sales
NW1 | £10m
7
4
4
62
1
31
1
41
3 2
2
1
1
Source: Knight Frank Research
Source: Knight Frank Research
All Prime Central London
£10 million-plus
3
The future feels positive ”Pent-up demand continues to
build as buyers sense good value.
At the same time, a growing
number of vendors are taking
a more pragmatic approach
and engaging with buyers,
which is why we expect future
activity levels to strengthen.
The continuing weakness of the
pound means there has been
a good balance of international
and domestic demand, with
many pricing in the political risk
surrounding Brexit and taking a
long-term view.”
Paddy Dring, Global Head of
Prime Sales
Life cannot be paused any longer “Brexit has become less of an
issue as the can has been kicked
further down the road. People
have been waiting a long time for
a resolution and there comes a
point when they simply have to
move on with their life. There is an
interesting dynamic at play: buyers
are understandably keen to time
their purchase correctly but there
comes a point when life decisions
mean it becomes self-defeating to
hold out any longer.”
Daniel Daggers, Private Office
Competition among buyers returns “Competition has returned among
buyers alongside the “fear of
missing out”. This is mostly seen
for ‘best-in-class’ properties in
good locations, where pricing
has reached its correct level. For
example, recently we have been
involved in a best bids scenario,
after 18 months of marketing
with little interest. I liken it to the
inclination of not wanting to eat in
an empty restaurant – interest from
one person sparks interest from
another.”
Charles Penny, Private Office
Education is a key demand driver “Education remains a key driver
of demand from Hong Kong but
the trend has changed in recent
years. Before, it was largely about
University education but buyers
are now thinking about it earlier
and earlier. It’s harder to get your
kids into local Hong Kong schools
so many families are now thinking
about getting into the best English
schools from the age of 13.
Some parents are starting to think
even further ahead, all of which
is increasing the buyer base for
super-prime London property.”
Mei Wong, Head of International
Residential Sales, Hong Kong
The prime new-build options are narrowing “We have seen a flurry of activity
across build-complete schemes
in prime central London, most
notably in Mayfair and Kensington.
The currency factor has been a
trigger for some decision-making
but a lot of demand also derives
from the fact that the options are
narrowing for finished super-prime
schemes in the prime postcodes.
In April, we saw five reservations in
completed schemes above
£10 million.”
Rupert des Forges, Head
of Prime Central London
Developments
The appeal of real assets “As our Wealth Report showed,
London has the highest number of
ultra-high net worth individuals of
any city in the world and shrugged
off Brexit-related concerns to
claim top spot in the global City
Wealth Index. Real assets are
still seen as a good long-term
store of value. Deals above £25
million, for example, tend to involve
buyers who are as happy to buy a
property as they would buy a plane
or a boat.”
Tom van Straubenzee, Head of
Private Office
Passing peak uncertainty “Transaction volumes will increase
when buyers have more clarity
regarding the resolution of Brexit.
Sentiment is then likely to improve
quickly as we move on from ‘peak
uncertainty’, particularly given how
robust the economic fundamentals
are. Best-in-class stock, whether
fully-serviced lateral apartments
or low-build family houses with
large gardens, remain the most in-
demand properties for capitalised
and active buyers. ”
Rory Penn, Head of Private Office
2019/20 OUTLOOK AGENT PERSPECTIVE Knight Frank’s agents in the super-prime market share their perspective on some of the key trends.
Sentiment is then likely to improve quickly as we move on from ‘peak uncertainty’, particularly given how robust the economic fundamentals are.“
SUPER-PRIME INSIGHT 2019 RESIDENTIAL RESEARCH
FIGURE 3 £20m+ market activity Rolling annual total
Jan-
18
Mar
-18
May
-18
Jul-1
8
Sep-
18
Nov
-18
Jan-
19
0
5
10
15
20
25
30
35
40
£0.6bn
£0.9bn
£1.2bn
£1.5bn
Source: Knight Frank Research
Volume of sales Value of sales
4
Important Notice © Knight Frank LLP 2018 - 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.
Paddy Dring Global Head of Prime Sales +44 20 7861 1061 paddy.dring@knightfrank.com
PLEASE GET IN TOUCH If you are looking to buy or sell or would just like some property advice, we would love to hear from you.
SUPER-PRIME INSIGHT 2019 RESIDENTIAL RESEARCH
REPORTS
BUYERS POISED FOR END OF BREXIT UNCERTAINTY
OWNERS SWITCH BETWEEN SALES AND LETTINGS MARKETS
UK ECONOMIC INDICATORS REMAIN POSITIVE
LONDON RESIDENTIAL REVIEWSUMMER 2019
RESIDENTIAL RESEARCH
There were a total of 131 super-prime (£5,000-plus per week) tenancies agreed in London in 2018, which was marginally lower than a figure of 136 recorded during 2017.
Despite this relatively flat performance, the number of deals last year was more than a fifth higher than 2016 or 2015. It suggests that super-prime lettings activity has stabilised after two years of strong growth, as figure 1 shows.
Demand has risen in recent years in response to the more adverse tax landscape in the sales market and, more recently, political uncertainty related to Brexit. Higher transaction costs and the associated price declines in the sales market meant that more would-be buyers became tenants.
However, a growing belief among some that pricing in the super-prime sales market may be near the bottom means activity could be flatter in the lettings market, says Tom Smith, head of super-prime lettings at Knight Frank.
“Super-prime lettings activity experienced a gear-shift in recent years and now I sense the market may be reaching a plateau,” said Tom. “We have a number of prospective tenants who are looking at the sales market more closely
after the re-pricing that has taken place. Some recent high-profile sales have helped boost sentiment in this regard.”
Despite this shift, the changeable and increasingly stringent global tax environment means demand for super-prime lettings properties will remain strong, said Tom.
“Tax and regulatory changes around the world mean some have reacted by becoming more footloose and would rather rent rather than buy,” he said.
While such tenants typically look for apartments or penthouses that are serviced by five-star hotels, there is a lack of supply for this type of property in the highest price brackets. Apartments represented 40% of super-prime lettings listings in 2018, down from 47% in 2016, LonRes data shows.
This tightnening supply means landlords can charge a premium for the highest-value apartments, said Tom.
“A best-in-class house will rent for approximately £130 per square foot per year. However, the figure is closer to £230 for the best apartments.”
While activity in the super-prime lettings market is not accelerating at the same pace as previous years, long-term tenant demand will remain strong, as Tom Smith tells Tom Bill
8 Wilton Crescent, guide price £25,000 per week
46 Avenue Road, guide price £17,000 per week
LONDON SUPER-PRIME LETTINGS INSIGHT SPRING 2019
FIGURE 2 London super-prime lettings volumes and achieved rental values
FIGURE 1 The super-prime lettings market plateaus £5,000-plus per week tenancies agreed, annualised
% change
0
10
20
30
40
50
Q1-
2014
Q2-
2014
Q3-
2014
Q4-
2014
Q1-
2015
Q2-
2015
Q3-
2015
Q4-
2015
Q1-
2016
Q2-
2016
Q3-
2016
Q4-
2016
Q1-
2017
Q2-
2017
Q3-
2017
Q4-
2017
Q1-
2018
Q2-
2018
Q3-
2018
Q4-
2018
£12.5k £20k £23k £13k £17k £15k £19k £45k £30k £35k £45k £14k £20k £29k £25k £30k £19k £30k £25k £27k
£6,000
£8,000
£10,000
Tota
l let
s
Ave
rage
rent
al v
alue
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
-10%
0%
10%
20%
30%
Jan-
17
Mar
-17
May
-17
Jul-1
7
Sep-
17
Nov
-17
Jan-
18
Mar
-18
May
-18
Jul-1
8
Sep-
18
Nov
-18
Jan-
19
London Review Summer 2019
London Super Prime Lettings Spring 2019
THE GLOBAL ULTRA-PRIME
MARKET 2019
RESIDENTIAL RESEARCH
PRIME LONDON SALES INDEX
MAY 2019
PRIME CENTRAL LONDON
PRIME OUTER LONDON
Prime central London index | 5,586.7
Prime outer London index | 125.2 Annual change | -4.3%
Annual change | -5.0%
Monthly change | 0.0%
Monthly change | -0.3%Quarterly change | -0.8%
Quarterly change | -0.2%
Figure 1 The number of exchanges above £2 million rose by 1% in the year to April compared to the previous 12-month period. There was a 9% decline across all price brackets, which underlines how pent-up demand in higher-value markets is being released to a greater extent following stamp duty-related price adjustments.
Figure 2 This same trend is borne out by the fact that transaction volumes across all price brackets are rising to a greater extent in higher-value areas of the capital. In central London neighbourhoods, exchanges rose by 7% in the year to April, while the increase was 17% in north London, according to Knight Frank data.
Figure 3 Viewings have risen for properties worth more than £2 million. There were 3% more viewings in the first quarter of this year than the same period last year, the first such increase since 2017.
Figure 4 The number of offers made by buyers has risen by more than a quarter since the start of last year. Over the same period, the number of new properties listed for sale has fallen by over a third, underlining the relatively advantageous position for active vendors, particularly should the current political uncertainty recede.
The prime London sales indices are based on repeat valuations of second-hand stock and do not include new-build property, although units from completed developments are included over time.
FIGURE 4
Pent-up demand continues to build Rebased to 100
Source: Knight Frank Research / LonRes
FIGURE 2
Exhanges rise in higher-value markets Annualised % change
Source: Knight Frank Research
FIGURE 1
£2m-plus exchanges increase Annualised % change
Source: Knight Frank Research
FIGURE 3
Viewings above £2 million increase Annualised % change
Source: Knight Frank Research
Central London North London
Offers made New Properties Listed for Sale
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
Jun-
16Au
g-16
Oct
-16
Dec-
16Fe
b-17
Apr-1
7Ju
n-17
Aug-
17O
ct-1
7De
c-17
Feb-
18Ap
r-18
Jun-
18Au
g-18
Oct
-18
Dec-
18Fe
b-19
Apr-1
9
-15%
-10%
-5%
0%
5%
10%
15%
20%
Q1-
17
Q2-
17
Q3-
17
Q4-
17
Q1-
18
Q2-
18
Q3-
18
Q4-
18
Q1-
19
30405060708090
100110120130140
Jan-
18Fe
b-18
Mar
-18
Apr-1
8M
ay-1
8Ju
n-18
Jul-1
8Au
g-18
Sep-
18O
ct-1
8N
ov-1
8De
c-18
Jan-
19Fe
b-19
Mar
-19
Apr-1
9
-30%
-20%
-10%
0%
10%
20%
Jan-
18Fe
b-18
Mar
-18
Apr-1
8M
ay-1
8Ju
n-18
Jul-1
8Au
g-18
Sep-
18O
ct-1
8N
ov-1
8De
c-18
Jan-
19Fe
b-19
Mar
-19
Apr-1
9
Global Ultra-Prime Market 2019
Prime Central London Sales May 2019
Prime Country House Index Q1 2019
RESIDENTIAL RESEARCH
Tom Bill Head of London Residential Research +44 20 7861 1492 tom.bill@knightfrank.com
FIGURE 4 The location of London super-prime sales £10 million-plus sales by area, % share of the overall London market
FIGURE 5 Effective discount for £10m+ property (Currency change + price movement)
FIGURE 6 Median £/PSF in the London super-prime market Existing homes and new-build properties
0%
5%
10%
15%
20%
25%
Belg
ravi
a
Che
lsea
Ham
pste
ad
Kens
ingt
on
Knig
htsb
ridge
Mar
yleb
one
May
fair
Not
ting
Hill
Oth
er
Volume of SalesValue of Sales
2017
2018
2019
Bays
wat
er
Sout
h Ke
nsin
gton
St J
ohn’
s W
ood
PCL
USD
PCL
CH
F
PCL
SGD
PCL
RUB
PCL
MYR
PCL
INR
PCL
HKD
PCL
EUR
PCL
CN
Y
PCL
AED
-25%-20%-15%-10%-5%0%
Since EU referendum (June 2016 to May 2019) Mid-October 2008 to mid-October 2009 (GFC)
£4,275 £3,673 £4,261
£3,659£3,235
£3,313£4,441
£3,385 £3,219 £2,901£3,040
£3,312£3,144 £2,632
£3,008
£3,024£3,025 £2,550
£2,881
£3,005£2,467£2,844
£2,867
£2,781£2,426£2,642
£2,750£2,466
£2,415£2.613
£2,618£2,142
£2,406£2,449
£2,560 £1,640£2,174£1.983
£1,1446 £1,385 £1,988£1,680
Mayfair
Year to April 2016 Year to April 2017 Year to April 2018 Year to April 2019
KnightsbridgeSouth
KensingtonMarylebone
Kensington
Chelsea
Belgravia
Notting Hill
St John’s Wood
Bayswater
Hampstead
Source: Knight Frank Research Source: Knight Frank Research
Source: Knight Frank Research
The Wealth Report 2019
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