Prime property sales market in central London stabilizing but rents are down
The prime property market in central London is showing signs of stabilizations with sales levels rising and prices holding firm at the lower end of the market sector. The latest research from real estate firm JLL covering the second quarter of 2017 also shows that while activity has picked up in the letting market, rents are down on average by 1.3%, mainly due to oversupply issues.
The sales market for properties under £2 million, which represents two thirds of transactions in prime central London, has been the most robust over the past year as conditions have stabilized, with prices actually 1.8% higher compared with 12 months ago.
However, this is in contrast with the upper end of the market which is seeing a lack of committed demand and insecurity around pricing. Prices in the £5 million to £10 million and the £10 million plus markets have fallen by 1.6% and 4.6% respectively in the 12 months to the second quarter.
Overall, sales prices have fallen by 0.2% during the second quarter of the year but in the 12 months leading up prices increased by 0.1%. This is the first quarter that annual price growth has moved into positive territory since the fourth quarter of2014, when higher rates of marginal stamp duty were announced.
The number of transactions over the nine months to the end of June 2017 has averaged just over 700 sales a quarter, which is a vast improvement on the 500 purchases in the second quarter of 2016.
These figures mean that the annual total increased from 2,520 sales in the year to the end of the first quarter of 2017 to 2,730 sales, a rise of 9%. However, while these latest figures are encouraging, current transaction volumes are low by recent and historic standards.
‘In spite of recent political turmoil and the uncertain direction of Brexit negotiations, it is heartening to see the uplift in transactional volumes. Whilst much is made of the scarcity of transactions at the top of the market, it is actually the case that sales volumes have increased marginally in the first half of 2017compared with 2016 for properties between £5 million and £10 million and stayed broadly the same above £10 million,’ said Richard Barber, director of sales at JLL.
‘We expect the number of transactions to rise through the remainder of 2017, albeit only marginally, and we forecast that price falls at the top end of the market will peter out before the end of the year. The market is steadily rebalancing and should be on a firmer footing come the start of 2018,’ he added.
The data also shows that activity in the prime central London lettings market has improved gradually during the first two quarters of 2017 and this increased activity is across all property types and value bands.
Transaction levels increased by 3% in the first quarter and by a further 1% in the second quarter which has boosted the annual total to over 9,670, the highest level in almost three years. Over the past year transaction levels have risen by 6%.
The activity recovery has been led by the more robust lower end of the market. The number of lettings in the sub £500 per week market, which accounts for around 30% of all transactions in prime central London, has increased by 16% in the year to the end of June 2017. By contrast, the volume of new tenancies agreed in higher price brackets was just 1.9% up in the year.
Tenant demand has increased slightly during the second quarter and has helped lift turnover. Despite this, the oversupply of property on the market has led to further rental value falls.
The lower end of the market has been far more robust than the upper end during the past one to two years. Price falls for rentals below £1,000 per week have averaged 0.9% during the second quarter, notably below the 1.3% market average fall. These figures are in contrast to the upper end of the market where rents have fallen by around 10%.
The report says that the key issue for the prime central London lettings market is an oversupply of available properties evident across all price ranges. Subdued turnover over the past two years, weaker demand and several owners renting out their property having been unable or unwilling to sell have all contributed to raised supply levels.
It also points out that tenants are bargaining with the choice available to them. The gradual increase in transactions witnessed during the course of the past two quarters will help to lower available supply in the coming quarters, but the very steady increase will take some time to have a meaningful impact.
‘The lower end of the prime central London lettings market is showing signs of stabilisation and we expect the rest of the market to follow suit gradually during the remainder of 2017,’ said Lucy Morton, head of residential agency at JLL.
‘The seasonally more active third quarter will come as a welcome relief and will rebalance the oversupply problem to some extent. We expect further, but more minor, rental value falls during the rest of this year with greater stability returning in readiness for 2018,’ she added.