Cautious optimism and activity increase for London property market

There has been an increase in landlords' flexibility and autumn activity, according to Knight Frank's Prime Central London Sales and Letting indices for August.

Property market in prime central London
A report by Knight Frank highlights the increase in activity as rental values decline in prime central London.In the three months to July the number of new properties put on the market increased 38.9 per cent, in comparison to the same period a year earlier. A series of tax rises and the potential effect of Brexit have led to an uncertainty over price growth in the sales market and subsequently caused a steady increase in supply over the past year.
  • The number of new prospective tenants increased 7.2 per cent in the three months to July
  • Rental values declined –4.1 per cent in the year to July 2016
  • Average gross prime yields were flat at 3.1 per cent 
Landlords will have to demonstrate increased flexibility during negotiations with tenants as a result of supply increasing at a faster rate than demand. This shift in power sees tenants in the strongest position since the immediate aftermath of the financial crisis.Tom Bill, Knight Frank's head of London residential research, comments, "Due to the mood of cautious optimism returning to the sales market, some would-be landlords plan to wait until later this year before renting out their property in the expectation that demand in the sales market will strengthen."Tim Hyatt, head of lettings at Knight Frank, comments, "We had a record month for lettings in August, indicating that the market is very strong. The most rapidly growing area of demand is within the sub-£1,000 per week market, although we have also seen a flurry of activity in the super-prime market. We are seeing good supply levels in the prime London market which means that tenants are in a strong position, although demand is on the rise. Demand also remains high across our new development offices."

Cautious optimism for the prime central London market

Despite the seasonal summer lull, there are grounds to believe activity will increase in the autumn, says Knight Frank.Residential sales in central London were stronger this August than the previous year, although still relatively subdued due to the seasonal summer lull. However, there are signs that activity could intensify over the coming months due to recent stamp duty increases and, to a lesser extent, the EU referendum’s catalyst effect on price adjustments.The impact of Brexit will become clearer over the next few years, depending on the agreement reached between the UK and the EU. So far, we have seen the following impact:
  • There has been a 22.1 per cent rise in the number of new prospective buyers since the EU referendum versus 2015
  • The number of properties under offer in the eight weeks since Brexit rose 19 per cent compared to last year
  • Web viewings grew by 20.8 per cent while viewings increased by 49 per cent compared to last year
  • Annual price growth declined to –1.8 per cent, the steepest decline since October 2009
Tom Bill, Knight Frank's head of London residential research, comments, "It is still early for firm conclusions of future market moves following the EU referendum, however the worst of the initial forecasts appear to have been avoided to date. The tentative improvement in some demand indicators provide grounds to believe the prime central London market is set for at least a modest recovery in trading volumes, whether this translates into an uptick in pricing is less clear."James Pace, partner and head of Knight Frank’s Chelsea office, said, "Whilst prices in Chelsea do seem to have dropped by more than other areas in London, this has taken a long time to transpire. As a result, we are seeing a return to the market of new buyers and a huge increase in viewings so it is having a positive impact on activity. Prices in Chelsea were being compared by buyers to those in areas such as Kensington and Notting Hill, and on occasion Fulham and areas south of the river and, unfortunately to many, we looked too expensive. Now that the gap has closed between pricing within these markets, we are seeing increasing interest and are cautiously optimistic for a busy autumn market."

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