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AFFORDABILITY SUPPLY VS DEMAND COMMUTER LOCATION COMPARISON RESIDENTIAL RESEARCH FOCUS ON: STAINES-UPON- THAMES 2017
RESIDENTIAL RESEARCH
AFFORDABILITY SUPPLY VS DEMAND COMMUTER LOCATION COMPARISON
FOCUS ON: PARSONS GREEN 2016
RESIDENTIAL RESEARCH
FOCUS ON: STAINES-UPON-THAMES 2017
2
Emphasising the town’s growing popularity, Staines-upon-Thames was named as the number one location in the UK to start a business in 2014 by UHY Hacker Young. Situated in the small borough of Spelthorne in Surrey, in close proximity to Heathrow Airport, the M25 and the M4 Corridor, Staines-upon-Thames forms part of the Enterprise M3 Local Economic Partnership, the UK’s digital economy hub employing over 50,000 workers.
On top of a burgeoning local economy, Staines-upon-Thames is surrounded by some of the most expensive real estate in the UK outside of London (figure 2). Towns such as Virginia Water, Walton-on-Thames, Windsor and
Weybridge form part of London’s prime commuter belt. In comparison, it might be argued that Staines-upon-Thames is a relatively undervalued market given its geographical location.
However, there are signs that this is starting to change. In the third quarter of 2016 house prices in Staines-upon-Thames increased by 16.3%, significantly outpacing growth of 9.5% across Surrey. Despite this recent outperformance, values in Staines-upon-Thames are still around 20% below the Surrey average.
Commuter belt affordabilityOfficial data shows that Spelthorne has one of the lowest house price to
ALL IN THE NAMEOver the last 10 years the town of Staines has been rejuvenated, culminating in a name change to Staines-upon-Thames in 2012
Please refer to the important notice at the end of this report
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FIGURE 2
Average sale price in the last 12 months
Source: Knight Frank Research/UK HPI
FIGURE 1
Price growth in Spelthorne, Surrey, South East, London and UK Prices indexed 100 = Jan 2011
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income ratios – a common measure of affordability – in Surrey. Latest data from the Government’s own house price affordability index highlights house price affordability in Spelthorne is significantly below the Surrey average, as shown in figure 3.
This is likely to attract greater numbers of Londoners to the town in search of more internal and external space. In fact, data from the Office for National Statistics suggests this is already happening – nearly two thirds (60%) of residents moving to Spelthorne were from London in 2015, up from 53% in 2013.
The Private Rented Sector is the fastest growing tenure type across the UK, and accounts for a fifth of the housing stock in Staines-upon-Thames (figure 6). Mosaic household analysis shows demand for rented accommodation is mainly from young professionals as well as students at the Royal Holloway University in Egham, one of the UK’s top 20 universities and home to more than 9,000 students. Monthly rental values currently average £1,106 according to data from TwentyCi, meaning rental values in Staines-upon-Thames are 28% below the average rent in London.
A lack of new homesAs a whole, the UK has a chronic undersupply of new homes and Staines-upon-Thames is no exception. Although the town has benefited from regeneration to improve its commercial
offering, this has yet to extend to the new homes market. In the last five years, 317 new homes have been built while a further 103 homes are currently under construction, according data from Glenigan. Looking at the wider Spelthorne area, some 1,100 net additional dwellings have been delivered since 2011/12, compared to a projected 1,360 growth in the number of new households, indicating a 20% undersupply of housing.
Over the next five years, current projections show that 3,000 new households will be created in Spelthorne. However, the current pipeline of new dwellings suggest that supply will undershoot demand by a third. Of developments within the pipeline, two schemes exceed 200 units, both of which are located in Staines-upon-Thames – on the High Street and Bridge Street, suggesting new homes supply in the borough will be focused in and around the town.
A total of 101 homes have been purchased through the Help to Buy Equity Loan scheme in Spelthorne, accounting for a fifth of new homes completions in the borough since its inception in April 2013. We expect this trend to continue in the new homes sales market. Coupled with the backlog already in place after long-term under supply and supply demand imbalance, such factors are likely to underpin price growth moving forward.
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EnglandLondonSouth EastSurreySpelthorne
34.2%
10.3% 14.7% 7.6%12.9%9.9%
EnglandLondonSouth EastSurreySpelthorne
10.3% 14.7% 7.6%12.9%9.9%
Surrey
Spelthorne London
South East
United Kingdom
Source: Knight Frank Research
FIGURE 4
Housing stock by age Staines-upon-Thames
1973-Present1945-19721900-1939Pre 1900
10.4%
24.6%
30.8%34.2%
Source: Knight Frank Research/DCLG
FIGURE 3
House price to earnings ratio
2011/12 2012/13 2014/15 2015/162013/14
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Final
Source: DCLG
FIGURE 5
Housing supply vs household projections
FOCUS ON: STAINES-UPON-THAMES
4
Connectivity Heathrow Airport and the air freight sector are two of the largest local employers in Staines-upon-Thames, with over 6,000 employees of Heathrow Airport living in the borough of Spelthorne. Other large employers include BP, Shepperton Studios, British Gas and Wood Group Kenny. As such, a considerable proportion of working residents in Staines commute to neighbouring boroughs as opposed to central London. This is evidenced by commuting data from the ONS which shows that, of the 18,001 residents commuting to London boroughs, 54% work in Hounslow and
Hillingdon. Conversely, just over 10% commute into Westminster, the City of London and Tower Hamlets.
However, the fundamentals are there for Staines-upon-Thames to establish itself as a commuter location for the capital. The fastest trains into London Waterloo take 37 minutes, a commute on a par with Weybridge and faster than nearby Windsor, Chertsey, Virginia Water and Egham, as shown in figure 7. Annual rail season ticket prices are also lower than prices for similar tickets from stations in the surrounding area.
Meanwhile, from 2019, Crossrail (Elizabeth Line) will run from Reading
to Shenfield via central London, cutting journey times for millions of commuters. Those living in and around Staines-upon-Thames will be within a 15 to 20 minute drive of three Crossrail stations at Iver, West Drayton and Hayes and Harlington. Travel times to Bond Street will be reduced from 38 to less than 26 minutes from the three stations, with Liverpool Street and Canary Wharf less than 33 minutes and 40 minutes away respectively.
Further ahead, proposals for a second Crossrail line, running from South West London to North East London (Crossrail 2), include a regional branch
STAINES-UPON-THAMES
STAINES-UPON-THAMES FASTEST TRAIN TO LONDON37 MINS
DRIVE TIME TO CENTRAL LONDON1 HR 20 MINS
DRIVE TIME TO HEATHROW AIRPORT1 HR 20 MINS
WEYBRIDGE WINDSOR CHERTSEY VIRGINIA WATER EGHAM
DRIVE TIME TO HEATHROW AIRPORT
9 MINS
FASTEST TRAIN TO LONDON37 MINS
SEASON TICKET PRICE£3,180
DRIVE TIME TO CENTRAL LONDON
53 MINS
DRIVE TIME TO HEATHROW AIRPORT
16 MINS
FASTEST TRAIN TO LONDON34 MINS
SEASON TICKET PRICE£3,624
DRIVE TIME TO CENTRAL LONDON
60 MINS
DRIVE TIME TO HEATHROW AIRPORT
14 MINS
FASTEST TRAIN TO LONDON41 MINS
SEASON TICKET PRICE£3,520
DRIVE TIME TO CENTRAL LONDON
55 MINS
DRIVE TIME TO HEATHROW AIRPORT
14 MINS
FASTEST TRAIN TO LONDON60 MINS
SEASON TICKET PRICE£3,624
DRIVE TIME TO CENTRAL LONDON
58 MINS
DRIVE TIME TO HEATHROW AIRPORT
12 MINS
FASTEST TRAIN TO LONDON47 MINS
SEASON TICKET PRICE£3,600
DRIVE TIME TO CENTRAL LONDON
57 MINS
DRIVE TIME TO HEATHROW AIRPORT
10 MINS
FASTEST TRAIN TO LONDON46 MINS
SEASON TICKET PRICE£3,396
DRIVE TIME TO CENTRAL LONDON
55 MINS
FIGURE 7 Commute and travel time comparison
FOCUS ON: STAINES-UPON-THAMES RESIDENTIAL RESEARCH
20.3%
PRIVATELY RENTED
36.5%
OWNED WITHA MORTGAGE
26.9%
OWNED OUTRIGHT
16.3%
SOCIALRENTED
Source: ONS
FIGURE 6
Tenure in Staines-upon-Thames
5
from Raynes Park to Shepperton, which would provide Staines-upon-Thames with a fourth Crossrail station within a 20 minute drive of the town centre. However, it is worth noting that Crossrail 2 is not expected to be operational until at least 2030.
Crossrail will help to attract more businesses into the area, as will plans for the Windsor Link Railway, a privately funded £200 million projected that would provide a direct rail link from Staines-upon-Thames to Heathrow Airport, as well as improving connectivity to Windsor, Slough and Reading. The line will potentially be in operation from 2022, subject to planning.
A local retail hubStaines-upon-Thames possesses the characteristics to establish itself amongst its neighbours in London’s prime commuter belt. Lining both banks of the River Thames, the town enjoys almost four miles of river frontage with large homes, pubs and restaurants overlooking the river, interspersed by
rowing clubs. Meanwhile, the town hosts a local market three times a week and is on the edge of the Colne Valley Regional Park, a popular location for walkers, runners and cyclists.
The local education offering is also a draw. In the borough of Spelthorne there are 33 schools of which three are rated outstanding by Ofsted, two within Staines-upon-Thames itself. Furthermore, an additional 23 schools within the borough are considered good or very good. Such a large provision of quality schooling will certainly appeal to young families looking to move out of London in the search for more space.
OutlookThe combination of affordability, a direct train link into London which takes less than 40 minutes, a bustling high street, almost four miles of river frontage, proximity to green spaces and Heathrow Airport will all continue to contribute towards Staines-upon-Thames becoming an increasingly popular location for buyers from London and further afield.
Source: Knight Frank Residential Research
South East house price forecast 2017-2021: 17%
Private Rented Sector Stock20.3%
Proposed £200m WindsorLink Railway,providing a direct rail link to Heathrow Airport
from 2022
Home-ownership: 63.4%, in line with UK average
Average monthly rent: £1,106
3.82 miles of river frontage in Staines-upon-Thames
2 Schools in Staines-upon-Thamesrated outstanding
New homes delivery last five years:317 new homes
20 minute drive to three Crossrail stations (from 2019)
New homes underconstruction: 103 new homes
Best location in UK to start a business in 2014
Fastest train to London Waterloo: 37 minutes
Development pipeline: 951 new homes
79% of schools in Spelthorne ratedgood, very good or outstanding
FOCUS ON: STAINES-UPON-THAMES RESIDENTIAL RESEARCH
17%forecast house price growth – South East England, 2017-2021
KEY FACTS
RECENT MARKET-LEADING RESEARCH PUBLICATIONS
UK Prime Country Review - Winter 2016
BUYER SURVEY REGIONAL FOCUSMARKET UPDATE
RESIDENTIAL RESEARCH
PRIMECOUNTRYREVIEW WINTER 2016
RESIDENTIAL RESEARCH
UK RESIDENTIAL MARKET FORECAST
“ The UK housing market has so far outperformed expectations following the referendum, however, price growth is expected to moderate next year as economic uncertainty and tax reforms impact on consumer confidence.”
For the latest news, views and analysis on the world of prime property, visit Global Briefing or @kfglobalbrief
SUBDUED OUTLOOK FOR PRICE GROWTHWhile the UK economy and housing market have held up far better than expected following the Brexit vote, the outlook for both remains uncertain.
Headlines November 2016Both the London and wider UK housing markets have outperformed expectations following the EU Referendum
Price growth in 2017 is expected to be notably slower than this year, in all regions
However, the fundamentals of the UK housing market remain largely unchanged
Between 2017 and 2021 UK house prices are forecast to rise by 14.2% cumulatively
Knight Frank Residential Market Forecasts
2016
2017
2018
2019
2020
2021
2017-2021Mainstream residential sales markets
UK 5.0% 1.0% 2.5% 3.0% 3.0% 4.0% 14.2%London 7.0% -1.0% 2.0% 2.5% 3.0% 5.5% 12.5%North East 0.0% 0.5% 2.5% 2.5% 2.0% 1.5% 9.3%North West 4.0% 0.5% 2.0% 2.5% 3.0% 2.0% 10.4%Yorks & Humber 3.5% 1.0% 3.0% 3.5% 3.0% 2.0% 13.1%
East Midlands 5.5% 1.5% 3.0% 3.5% 4.0% 4.5% 17.6%West Midlands 4.5% 1.5% 3.0% 4.0% 4.0% 4.0% 17.6%East 7.5% 1.5% 2.5% 4.0% 3.5% 5.5% 18.1%South East 8.0% 1.0% 2.0% 4.0% 4.0% 5.0% 17.0%South West 4.5% 2.0% 2.0% 3.5% 3.5% 4.5% 16.5%Wales -0.5% 0.0% 2.0% 2.5% 2.0% 2.0% 8.8%Scotland 2.0% 0.1% 2.3% 2.7% 2.8% 2.8% 11.0%
Prime residential sales markets
Prime Central London East* 1.0% 1.0% 3.5% 3.0% 3.5% 4.0% 15.9%
Prime Central London West** -7.0% 0.0% 1.0% 1.5% 3.0% 3.0% 8.8%
Prime Outer London -1.5% -1.5% 2.5% 3.0% 3.0% 4.0% 11.4%
Residential rental markets
UK 1.2% 1.4% 2.0% 2.0% 2.0% 2.0% 9.8%
Prime Central London East* -2.5% 0.0% 2.0% 3.5% 3.0% 3.0% 12.0%
Prime Central London West** -6.5% -2.0% 1.0% 2.0% 2.0% 2.0% 5.0%
Prime Outer London 1.5% 2.0% 3.0% 3.5% 3.0% 3.0% 15.4%
Both the London and wider UK housing markets outperformed expectations following the referendum. After a sharp dip in confidence just after the vote, conditions have improved into the autumn. On most measures the mainstream UK market continues to perform strongly – with annual price growth likely to end this year at 5%.
Most regional markets have seen positive growth, the exception being Wales. The ripple of price growth from London continued in 2016 and we expect the end of year position to be that the East of England and the South East will both see stronger growth than that in Greater London.
Looking into next year we believe that the slowdown in prices which has been evident in central London over the past 12-months will spread to the wider region, with Greater London prices down marginally in 2017. This slowdown in the capital will likely be experienced across the rest of the country with price growth down notably on 2016 levels.
The main drivers for weaker market performance relate to economic uncertainty surrounding the Brexit process, which we believe will impact negatively on consumer confidence in the run up to and just after the serving of the formal “notice to quit” the EU. In addition the impact of reforms to the taxation of landlords will reduce demand from
investors which will limit upwards pressure on prices.
Looking at the prime London market, we believe that a 7% fall in prices across the western part of central London in 2016 means that we are close to the bottom in terms of price adjustment in this market. Although there could be some further adjustment downwards in prime outer London markets through 2017.
For rental markets – it has been a mixed year for landlords in central London, demand from tenants has been strong, but this has been offset by a strong supply of rental properties. In our view there is a risk of further rental falls next year but not on the scale of the adjustments seen this year. The wider UK rental market looks relatively positive with modest rental growth expected. Rents could rise further if landlords begin to sell properties in an effort to offset to the impact of tax rises.
Source: Knight Frank Research *City & Fringe, Islington, Tower Bridge, King’s Cross and Riverside**Notting Hill, Kensington, South Kensington, Chelsea, Knightsbridge, Belgravia, Hyde Park, Marylebone, Mayfair, St John’s Wood
Economic and housing market overview House prices across the UK are rising on an annual basis, although the rate of growth is starting to slow and there are still large regional variations. As we move into 2017, economic uncertainty may weigh on the housing market, but the key fundamentals of the market remain – namely property taxes, a shortage of housing, and ultra-low mortgage rates.
Transaction levels were skewed this year by the introduction of the extra 3% stamp duty for additional homes, which started in April, as the chart below shows.
The Bank of England’s rate-setting committee voted to keep the base rate unchanged at 0.25% in December, keeping interest rates pegged at historically low levels.
The same can be said of mortgage rates. While some jostling and competition between lenders has led to the withdrawal of a few deals, there are still many home loans available at interest rates which are lower than many have ever experienced.
RESIDENTIAL RESEARCH
UK RESIDENTIAL MARKET UPDATE
“ Transaction levels were skewed this year by the introduction of the extra 3% stamp duty for additional homes in April.”Follow Gráinne at @ggilmorekf
For the latest news, views and analysis on the world of prime property, visit Global Briefing or @kfglobalbrief
GRÁINNE GILMORE Head of UK Residential Research
THE MARKET IN 2016 This year may have delivered a series of political surprises, but these have had a limited effect on the housing market so far. As we move into 2017, economic uncertainty may weigh on the market, but it is property taxes which continue to shape the residential landscape, as well as the undersupply of housing and ultra-low mortgage rates
Key facts December 2016Average annual house price growth across the UK slowed to 4.4% in November, according to Nationwide
Prices in prime central London fell 4.8% in the year to the end of November…
…however new buyer registrations rose 28% between September and November compared to the same period in 2015
Average UK house prices are forecast to rise by 14% across the UK over the next five years
Swap rates near record lows Annual % change
Source: Knight Frank Research
UK housing transactions and policy changes (E&W) 2007-2016
Source: Knight Frank Research/HMRC
25000
50000
75000
100000
125000
150000
175000
2016201520142013201220112010200920082007
Help to BuyEquity loanlaunched
Help to BuyLondon launched
Help to BuyMortgage Guarantee
launched
NewBuy Guaranteelaunched
Stamp duty reformed,rates rise to 12%
above £1.5mStamp Duty hol ends
Stamp Dutyrises to 5%
£1m+
FTBs Stamp Dutyhol up to £250,000
FTBs StampDuty hol ends
Funding forLending starts
3% Stamp Dutysurcharge for
additional properties
Scottish Referendum
Vote toleave EU
GeneralElection
Financial Crisis
Stamp Duty raisedto 7% for £2m+
Stamp Duty holidayup to £175,000
Num
ber
Gavin Barwell
Brandon Lewis
GrantShapps
Mark Prisk
John Healey
Kris Hopkins
CarolineFlint
Yvette Cooper
HousingMinisters:
MargaretBeckett
This is because swap rates, the money market rates which determine the price of fixed-rate lending, are also near historic lows.
This low-rate environment is to some extent helping underpin the market at present, as is the lack of supply of new homes. While the delivery of new-build
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UK Housing Market Forecast - Nov 2016
UK Residential Market Update - Dec 2016
RESIDENTIAL RESEARCH
UK RESIDENTIAL MARKET FORECAST
“ The UK housing market has so far outperformed expectations following the referendum, however, price growth is expected to moderate next year as economic uncertainty and tax reforms impact on consumer confidence.”
For the latest news, views and analysis on the world of prime property, visit Global Briefing or @kfglobalbrief
SUBDUED OUTLOOK FOR PRICE GROWTHWhile the UK economy and housing market have held up far better than expected following the Brexit vote, the outlook for both remains uncertain.
Headlines November 2016Both the London and wider UK housing markets have outperformed expectations following the EU Referendum
Price growth in 2017 is expected to be notably slower than this year, in all regions
However, the fundamentals of the UK housing market remain largely unchanged
Between 2017 and 2021 UK house prices are forecast to rise by 14.2% cumulatively
Knight Frank Residential Market Forecasts
2016
2017
2018
2019
2020
2021
2017-2021Mainstream residential sales markets
UK 5.0% 1.0% 2.5% 3.0% 3.0% 4.0% 14.2%London 7.0% -1.0% 2.0% 2.5% 3.0% 5.5% 12.5%North East 0.0% 0.5% 2.5% 2.5% 2.0% 1.5% 9.3%North West 4.0% 0.5% 2.0% 2.5% 3.0% 2.0% 10.4%Yorks & Humber 3.5% 1.0% 3.0% 3.5% 3.0% 2.0% 13.1%
East Midlands 5.5% 1.5% 3.0% 3.5% 4.0% 4.5% 17.6%West Midlands 4.5% 1.5% 3.0% 4.0% 4.0% 4.0% 17.6%East 7.5% 1.5% 2.5% 4.0% 3.5% 5.5% 18.1%South East 8.0% 1.0% 2.0% 4.0% 4.0% 5.0% 17.0%South West 4.5% 2.0% 2.0% 3.5% 3.5% 4.5% 16.5%Wales -0.5% 0.0% 2.0% 2.5% 2.0% 2.0% 8.8%Scotland 2.0% 0.1% 2.3% 2.7% 2.8% 2.8% 11.0%
Prime residential sales markets
Prime Central London East* 1.0% 1.0% 3.5% 3.0% 3.5% 4.0% 15.9%
Prime Central London West** -7.0% 0.0% 1.0% 1.5% 3.0% 3.0% 8.8%
Prime Outer London -1.5% -1.5% 2.5% 3.0% 3.0% 4.0% 11.4%
Residential rental markets
UK 1.2% 1.4% 2.0% 2.0% 2.0% 2.0% 9.8%
Prime Central London East* -2.5% 0.0% 2.0% 3.5% 3.0% 3.0% 12.0%
Prime Central London West** -6.5% -2.0% 1.0% 2.0% 2.0% 2.0% 5.0%
Prime Outer London 1.5% 2.0% 3.0% 3.5% 3.0% 3.0% 15.4%
Both the London and wider UK housing markets outperformed expectations following the referendum. After a sharp dip in confidence just after the vote, conditions have improved into the autumn. On most measures the mainstream UK market continues to perform strongly – with annual price growth likely to end this year at 5%.
Most regional markets have seen positive growth, the exception being Wales. The ripple of price growth from London continued in 2016 and we expect the end of year position to be that the East of England and the South East will both see stronger growth than that in Greater London.
Looking into next year we believe that the slowdown in prices which has been evident in central London over the past 12-months will spread to the wider region, with Greater London prices down marginally in 2017. This slowdown in the capital will likely be experienced across the rest of the country with price growth down notably on 2016 levels.
The main drivers for weaker market performance relate to economic uncertainty surrounding the Brexit process, which we believe will impact negatively on consumer confidence in the run up to and just after the serving of the formal “notice to quit” the EU. In addition the impact of reforms to the taxation of landlords will reduce demand from
investors which will limit upwards pressure on prices.
Looking at the prime London market, we believe that a 7% fall in prices across the western part of central London in 2016 means that we are close to the bottom in terms of price adjustment in this market. Although there could be some further adjustment downwards in prime outer London markets through 2017.
For rental markets – it has been a mixed year for landlords in central London, demand from tenants has been strong, but this has been offset by a strong supply of rental properties. In our view there is a risk of further rental falls next year but not on the scale of the adjustments seen this year. The wider UK rental market looks relatively positive with modest rental growth expected. Rents could rise further if landlords begin to sell properties in an effort to offset to the impact of tax rises.
Source: Knight Frank Research *City & Fringe, Islington, Tower Bridge, King’s Cross and Riverside**Notting Hill, Kensington, South Kensington, Chelsea, Knightsbridge, Belgravia, Hyde Park, Marylebone, Mayfair, St John’s Wood
UK Housing Market Forecast - Nov 2016
Global Cities – The 2017 Report
THE 2017 REPORT
The Future Of Real Estate In The World’s Leading Cities
Important Notice © Knight Frank LLP 2017 – 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.
For the latest news, views and analysison the world of prime property, visit
KnightFrankblog.com/global-briefing
GLOBAL BRIEFING
RESIDENTIAL RESEARCH
Gráinne Gilmore Head of UK Residential Research +44 20 7861 5102 [email protected]
David RamsdaleSenior Analyst +44 20 8366 8038 [email protected]
LONDON RESIDENTIAL
Nigel Fleming Partner +44 20 7861 5409 [email protected]
Greg Bennett Associate +44 20 7861 1763 [email protected]
Knight Frank Research provides strategic advice, consultancy services and forecasting to a wide range of clients worldwide including developers, investors, funding organisations, corporate institutions and the public sector. All our clients recognise the need for expert independent advice customised to their specific needs.
Knight Frank Research Reports are available at KnightFrank.com/Research
The Wealth Report 2016
2016
10th Edition
THE WEALTH REPORTThe global perspective on prime property and investment
Front cover image: Shutterstock
The second half of 2016 was marked by a steady improvement in sales volumes as vendors lowered asking prices to reflect the changed regulatory backdrop in prime central London.
An analysis of sales volumes for this year shows that following a spike in March ahead of a stamp duty hike and fewer transactions in subsequent months as uncertainty around the EU referendum intensified, activity has risen steadily in recent months.
This pattern is in contrast to last year, when there was a pick-up following the May general election, as figure 2 shows.
In respect of the first eleven months of 2016, Knight Frank data shows November accounted for 14.1% of total sales, the second highest month after March. Indeed, the number of Knight Frank sales was higher in November 2016 than the same month in 2014 and 2015.
We observe a similar though less marked uptick in the wider London market, with November accounting for 10.1% of sales recorded on LonRes in the first eleven months of 2016, the
third highest figure after 10.8% in February and 18% in March.
Further analysis shows to what extent transactions have stabilised since the summer. While sales volumes were -38% lower in June compared to 2015, this gap had halved to -19% by November. The equivalent figure compared to 2014 narrowed to -18% from -45% over the same time period.
Whether strengthening sales volumes in the second half of 2016 will provide a reliable indicator for the first six months of 2017 remains to be seen. Political uncertainty is unlikely to subside in the early part of next year as the UK triggers the process to leave the European Union, Donald Trump potentially charts a new economic course in the US and ahead of elections in several European countries.
However, as the 2016 sales volumes data shows, sufficient pent-up demand has formed for buyers to act when they perceive value. Average values fell -6.3% in the year to December 2016, and we expect to see broadly flat price growth in 2017 as declines start to bottom out.
December 2016November was the second highest month for sales volumes in 2016 after a stamp duty spike in March
The number of Knight Frank sales in November was higher than the same month in 2014 and 2015
Year-on-year decline in sales volumes narrowed to -19% in November from -38% in June
Annual growth declined to -6.3% in December
Macro View: The difficulty of assumptions in 2017
“As the 2016 sales volumes data shows, sufficient pent-up demand has formed in the last two years for buyers to act when they perceive value” Follow Tom at @TomBill_KF
For the latest news, views and analysis on the world of prime property, visit Global Briefing or @kfglobalbrief
SALES VOLUMES STRENGTHEN IN NOVEMBER AS ASKING PRICES ADJUSTDespite a backdrop of political uncertainty, sales volumes are rising as lower asking prices release pent-up demand, says Tom Bill
RESIDENTIAL RESEARCH
PRIME CENTRALLONDON SALES INDEX
FIGURE 1 Price growth in prime central London
Source: Knight Frank Research Source: Knight Frank Research
FIGURE 2 Sales volumes increased in late 2016 Percentage of total sales, January to November
2015 2016TOM BILL
Head of London Residential Research
12-month change 6-month change Quarterly change Monthly change
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
Dec-
15Ja
n-16
Feb-
16M
ar-1
6Ap
r-16
May
-16
Jun-
16Ju
l-16
Aug-
16Se
p-16
Oct-1
6No
v-16
Dec-
16
0%
5%
10%
15%
20%
25%
Jan
Feb
Mar Apr
May Jun Jul
Aug
Sep
Oct
Nov
The prime central London lettings market in 2016 was marked by high stock levels and falling rental values.
The trend was caused primarily by an uncertain outlook for price growth in the sales market following a series of tax changes, which meant more vendors decided to let their property until greater clarity emerged.
Despite the seasonal slowdown, November 2016 was the first month that marked a reversal of this trend, suggesting rental value declines may be starting to bottom out.
Annual rental value growth last peaked at 4.2% in May 2015, the month of the UK general election, and has been on a downwards trajectory since then.
However, November saw a minor improvement, with rental value growth of -5.1% compared to a figure of -5.2% in October.
Falling rental values coupled with impending tax changes that will affect landlords in 2017 have had a dampening effect on new supply.
The number of new properties placed on the
market in November fell -17% compared to the same month in 2015, which was the first year-on-year decline in 2016. If the rate of new stock continues to slow, there could be a stabilising effect on rental values at the start of 2017.
For now, however, prime central London remains a tenants’ market due to the high levels of stock that came onto the market in 2016, primarily in higher price brackets.
Activity levels remained high as the Christmas holiday period approached. The number of tenancies agreed in November was 34% higher than the same month in 2015, which compared to a rise of 23.6% over the first eleven months of the year (figure 2). The number of viewings rose 17.8% between January and November, while new prospective tenants increased 6.9%.
Furthermore, despite ongoing weaker demand among company executives due to the uncertain global economic backdrop, many markets experienced an uptick in viewings and new prospective tenants ahead of the holiday period among executives who delayed acting until after the US general election.
December 2016Annual rental value growth eased to -5.1% in December
The number of new instructions fell -17% in November, the first decline in 2016
The number of tenancies agreed in November was 34% higher than the same month in 2015
Average prime gross yield was 3.21%
Macro View: The difficulty of assumptions in 2017
“If the rate of new stock continues to slow, there could be a stabilising effect on rental values at the start of 2017”Follow Tom at @TomBill_KF
For the latest news, views and analysis on the world of prime property, visit Global Briefing or @kfglobalbrief
NEW SUPPLY SHOWS SIGNS OF RECEDING IN PRIME CENTRAL LONDON High stock levels continue to put downwards pressure on rental values but the trend is showing early signs of a reversal, says Tom Bill
RESIDENTIAL RESEARCH
PRIME CENTRALLONDON RENTAL INDEX
FIGURE 1 Rental value growth in prime central London
Source: Knight Frank Research
FIGURE 2 New supply falls while demand remains resilient 2016 versus 2015
TOM BILL Head of London Residential Research
12-month change 6-month change Quarterly change Monthly change
New
Prop
ertie
s On
Th
e M
arke
t
Tena
ncies
Ag
reed
New
Pros
pect
ive
Tena
nts
View
ings
24% 23%18%
7%
-17%
34%29%
10%
Source: Knight Frank Research
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
Dec-
15Ja
n-16
Feb-
16M
ar-1
6Ap
r-16
May
-16
Jun-
16Ju
l-16
Aug-
16Se
p-16
Oct-1
6No
v-16
Dec-
16
Jan-Nov Nov
This report analyses the performance of single-unit rental properties in the second-hand prime central London market between £500 and £5,000-plus per week. For an analysis of the build-to-rent market and the institutional private rented sector in London and the rest of the UK, please see our Private Rented Sector Update report here.
Prime Central London Sales Index - Dec 2016
Prime Central London Rental Index - Dec 2016
