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London Residential ReviewQ1 2021

Prices fall in 2020 Lettings imbalance persists

Latest five-year forecasts

https://www.knightfrank.com/research

1 Annual growth in prime central London vs prime outer Londonn POL n PCL

Source: Knight Frank Research

4.3% Annual price fall in prime central

London during 2020

3.2% Annual price fall in prime outer London

during 2020

3% Forecast increase in prime central

London prices in 2021, with price

growth in the Greater London area

expected to be 1%

P R I M E LO N D O N SA L E S M A R K E T I N S I G H T Sales market finishes down in 2020 but 2021 should deliver a return to price growth as the economy opens up

With England in a third national

lockdown, assessing how short-term

sentiment will change in the capital

remains complex.

While some form of lockdown may

remain in place into Q2, any evidence

that the vaccination programme is

limiting the impact of Covid-19 may

begin to encourage more activity in

the market.

In the first three weeks of January,

prospective buyers registering in

London remained 17% ahead of the

five-year average, demonstrating

appetite to buy remains.

Yet there has been a subtle shift

in sentiment, with the prospect of

more sellers holding off due to Covid-

related uncertainty during the first

weeks of 2021. This pent up supply

saw appraisals for sale in London

trailing the five-year average by more

than a third in January. As a result of

these developments we have revised

our forecast (see London and UK Price

Forecast on page 6).

The London property market was

shaped by the search for space during

2020 and restrictions on international

travel. This played to prime outer

London’s (POL) strengths and

disproportionately curbed demand

prime central London (PCL).

It also saw the annual price change

in PCL and POL reach its widest

point in 2020 during December, with

average prices in PCL down 4.3%

during 2020, while the annual decline

in POL was 3.2% (see fig. 1).

Uncertainty ahead of the Brexit

deal signed late last month also

played its part. The number of

viewings in the week to 12 December

in PCL was 11% below the five-year

average, while in POL the figure was

27% above the five-year average.

Overall, the relatively muted

price performance since the market

re-opened in May underscores how

the release of pent-up demand has

been balanced by fragile economic

sentiment.

However, momentum is building

in higher-value markets across

London, which has been particularly

notable between £5 million and £10

million (see fig. 2).

The increase reflects growing

demand for houses, which tend to be

more numerous in this price bracket

and more in-demand among domestic

buyers.

"Overall, the relatively muted price performance

since the market re-opened in May underscores how the release of pent-up demand

has been balanced by fragile economic sentiment."

TOM BILL

HEAD OF UK RESIDENTIAL RESEARCH

-6%

-5%

-4%

-3%

-2%

-1%

0%

Feb-20 Apr-20 Jun-20 Aug-20 Oct-20 Dec-20

2 Sales jump between £5m-£10mMay to December 2020 vs same period in 2019, % change

in sales volumes, London

Source: Knight Frank/LonRes

-10%

-5%

0%

5%

10%

15%

20%

£750k-£1m £2m-£5m £5m-£10m £10m+£1m-£2m

-1 .1 % - 4.9 %0.5 % 1.1 % -1. 2 % 1.1 %

-2 .5 %

9 M A R Y L E B O N E3 - M O N T H C H A N G E

S A L E S R E N T S

-2 .4 %- 5. 2 %

1 A L D G AT E3 - M O N T H C H A N G E

S A L E S R E N T S

1 6 B A R N E S3 - M O N T H C H A N G E

S A L E S

7 K I N G ' S C R O S S3 - M O N T H C H A N G E

S A L E S R E N T S

2 3 H A M P S T E A D3 - M O N T H C H A N G E

S A L E S R E N T S

13 SOUTH KENSINGTON3 - M O N T H C H A N G E

S A L E S R E N T S

6 K E N S I N G T O N3 - M O N T H C H A N G E

S A L E S R E N T S

2 B E L G R AV I A3 - M O N T H C H A N G E

S A L E S R E N T S

1 7 B AT T E R S E A3 - M O N T H C H A N G E

S A L E S R E N T S

8 K N I G H T S B R I D G E3 - M O N T H C H A N G E

S A L E S R E N T S

2 4 Q U E E N S PA R K3 - M O N T H C H A N G E

S A L E S R E N T S

2 1 D U L W I C H3 - M O N T H C H A N G E

S A L E S

1 4 S T J O H N ' S W O O D3 - M O N T H C H A N G E

S A L E S R E N T S

3 C H E L S E A3 - M O N T H C H A N G E

S A L E S R E N T S

1 8 B E L S I Z E PA R K3 - M O N T H C H A N G E

S A L E S R E N T S

2 5 R I C H M O N D3 - M O N T H C H A N G E

S A L E S R E N T S

2 2 F U L H A M3 - M O N T H C H A N G E

S A L E S R E N T S

1 5 T O W E R B R I D G E3 - M O N T H C H A N G E

S A L E S R E N T S

4 B AY S W AT E R3 - M O N T H C H A N G E

S A L E S R E N T S

1 9 C A N A R Y W H A R F3 - M O N T H C H A N G E

S A L E S R E N T S

10 MAYFAIR3 - M O N T H C H A N G E

S A L E S R E N T S

2 6 W A N D S W O R T H3 - M O N T H C H A N G E

S A L E S

2 8 W I M B L E D O N3 - M O N T H C H A N G E

S A L E S R E N T S

5 I S L I N G T O N3 - M O N T H C H A N G E

S A L E S R E N T S

2 0 C H I S W I C K3 - M O N T H C H A N G E

S A L E S

1 1 N O T T I N G H I L L3 - M O N T H C H A N G E

S A L E S R E N T S

2 7 W A P P I N G3 - M O N T H C H A N G E

S A L E S R E N T S

P R I M E C E N T R A L L O N D O N S A L E S R E N TS 3 - M O N T H C H A N G E

3 - M O N T H C H A N G ES A L E S R E N TS

0.1 %

0.5 %

- 3.9 %

P R I M E O U T E R L O N D O N

1 2 R I V E R S I D E3 - M O N T H C H A N G E

S A L E S R E N T S

P R I M E L O N D O N P R I C E A N D R E N T A L G R O W T H , D E C E M B E R 2 0 2 0

23

24

518

714

1

19

21

26

28

16

20

22

6

114

9

28

3

13

17

25

12

271510

1. 2 % -7.9 %

- 0. 2 % -8.3 %

-1.1 % -1.1 %

0. 2 % -2 .6 %

0.0 %

0.0 % -1.0 %

0.0 % - 0.1 %

0.3 %

- 0. 2 % - 6.6 %

- 0. 7 % - 5. 7 %

0.0 % -1.6 %

- 0.3 % - 4. 7 %

0.0 % - 4.5 %

0.0 % -7.1 %0. 7 % - 0. 7 %

0.0 % -1.0 %0.0 % - 5.5 % 3.6 % -1.4 % -1. 2 % - 5.6 % 2 .9 % 0.6 %

0.0 % 1. 7 % - 0.3 %-1. 7 % - 4.6 %

- 3.3 %

P R I M E LO N D O N L E T T I N G S M A R K E T I N S I G H T Tenants are taking advantage of the downwards pressure on rents and the market remains active

The latest lockdown may further

delay the recovery in rental values,

after a year where supply outstripped

demand against the backdrop of the

pandemic.

Higher levels of supply and

weaker demand continued to exert

downwards pressure on rental values

across prime London markets in the

final months of 2020.

Average rents finished 2020 down

11.9% in prime central London and

9.8% in prime outer London.

Supply has been pushed higher by

a glut of short-term rental properties

coming onto the long-let market

due to the pandemic. Demand from

international students and corporate

tenants has also been weaker due to

Covid-19 and associated international

travel restrictions.

The impact of this supply/demand

imbalance had started to weaken over

the summer but tougher lockdown

measures, including a second national

lockdown in November, pushed rental

values down for a second time in 2020

(see fig. 3) before the latest national

lockdown.

What is also apparent is that

central London has been more

impacted than outer areas including

south-west London, where a stronger

sales market means fewer rental

properties have come onto the

market. For example, the decline

was 3.2% in Wimbledon and 4.2% in

Hampstead during 2020.

Despite the declines, the number

of tenancies started remains well

above the five-year average (see fig

4). Many tenants are moving due to a

need for more space or to be closer to

work, while also taking advantage of

lower rents.

In Canary Wharf prospective

tenants are looking to be able to walk

to work, highlighting an interesting

consequence of the pandemic in the

capital. In Q4 2020, viewing numbers

in Canary Wharf increased by 124%

compared to the same period in 2019.

This compared to a London-wide

average rise of 53%.

As the Covid-19 vaccine roll-out

programme gathers pace, travel

restrictions are relaxed, and London

returns to something closer to

normality, the supply and demand

gap should begin to close this year,

which could see the current trend

reverse.

4 Tenancies rise as rents fallWeekly % change in tenancies started vs five-year average.

Source: Knight Frank Research

-20%

0%

20%

40%

60%

80%

100%

120%

Sep-20 Oct-20 Nov-20 Dec-20

11.9% Annual rental value fall in PCL during

2020

9.8% Annual rental value decline in POL

during 2020

124% Increase in viewings by prospective

tenants in Canary Wharf during Q4

2020.

“What is also apparent is that central London has

been more impacted than outer areas including

south-west London, where a stronger sales market means fewer rental properties have

come onto the market.”

TOM BILL

HEAD OF UK RESIDENTIAL RESEARCH

3 Rental values dipped in prime London after the summern POL n PCL

Source: Knight Frank Research

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

Feb-20 Apr-20 Jun-20 Aug-20 Oct-20 Dec-20

2 0 2 1 2 0 2 2 2 0 2 3 2 0 2 4 2 0 2 5 C U M A L I T I V E2 0 2 1 - 2 0 2 5

P C L 3 % 6 % 5 % 4 % 5 % 2 5 %

P O L 4 % 4 % 4 % 4 % 5 % 2 3 %

P R I M E R E G I O N A L 4 % 5 % 3 % 3 % 4 % 2 0 %

U K 0 % 3 % 4 % 4 % 5 % 1 7 %

G R E AT E R LO N D O N 1 % 2 % 3 % 3 % 4 % 1 4 %

Please get in touch with usIf you are looking to buy, sell or would just like some property advice,

we would love to hear from you.

James Clarke

Head of London Sales

+44 20 3826 0625

james.clarke@knightfrank.com

Gary Hall

Head of Lettings

+44 20 7480 4474

gary.hall@knightfrank.com

Tom Bill

Head of UK Residential

Research

+44 20 7861 1492

tom.bill@knightfrank.com

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. Important Notice: © Knight Frank LLP 2021 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.

Knight Frank Research Reports are available atknightfrank.com/research

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We expect UK prices to be flat over the

course of this year (the previous figure

was +1%) and have also removed a

percentage point from our forecasts

for prime central and prime outer

London.

While the short-term economic

outlook has deteriorated, the end

of the furlough scheme will not

necessarily have a materially negative

impact on house prices by itself.

Although the end of the stamp

duty holiday will curb demand, the

Covid-19 vaccine rollout means any

cliff-edge will feel less precipitous by

the start of April.

In Greater London, we expect

prices to be broadly flat this year, with

a forecast of 1% growth reflecting the

greater resilience of the economy

in the capital as support measures

are unwound. Beyond this year, we

expect the UK to outperform due to

affordability constraints in London

as demand is pushed further into the

regions.

A period of price inflation is overdue

in the capital, despite the introduction

of a 2% stamp duty surcharge in April.

Between 2021 and 2025 we forecast

that prices in PCL will outperform the

market, with a cumulative increase

over the period of 25%. The cumulative

price increase in POL from 2021 to 2025

is expected to be 23%, meaning prime

London markets will outpace the UK,

Greater London and prime regional

markets during this time.

Chris Druce

Senior Research Analyst

+44 20 7861 5102

chris.druce@knightfrank.com

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