knig

htfra

nk.c

om/r

esea

rch

London Residential ReviewQ3 2020

PCL price growth returns

Lettings imbalance reduces

Five-year forecasts

1 Recovery times in prime central London Quarterly price change (%)

2 Monthly % price change in prime Londonn POL n PCL

Source: Knight Frank Research Source: Knight Frank Research

0.2%

First quarterly price growth in prime

central London in September since

February 2020

3%

Expected decline in prices this year

in both prime central and prime outer

London

5%

Forecast increase in prime central

London property prices in 2021, with

prime London expected to outperform

the wider UK property market over the

next five years

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 Prime central London registered its first quarterly price growth in Q3 since February as momentum continued to build

As England goes into a second

national lockdown, the property

market is due to remain open, which

should allow momentum to continue

building in prime London markets.

In an indication of how demand

has picked up, quarterly price growth

returned to the prime central London

property market in September for the

first time since February this year

(see fig. 2).

An average increase of 0.2% was

the same figure recorded during the

so-called ‘Boris bounce’ that followed

the general election in December

2019. While ‘bounce’ is not the best

description for what happened

between July and September, there

was a notable recovery from the

period of marked uncertainty that

caused prices to fall in Q2.

In prime outer London, September

marked the second consecutive

month of rising prices over a three-

month period (+0.8%). This stronger

performance has been driven by an

increase in demand for family houses

and more outdoor space since the

lockdown.

Demand remains strong compared

to previous years but there are signs

it won’t be as resurgent during Q4

as it was in Q3. The number of new

prospective buyers registering in

London was 49% above the five-

year average in the week ending 10

October. That increase has halved

since July and August.

As winter approaches, sentiment

will remain key. UK economic

forecasts have been downgraded

in light of the second lockdown,

however, activity in the property

market is likely to remain high

given the length of time it will take

to complete deals agreed after the

market re-opened in May. While

the twin uncertainties of Brexit and

the pandemic may deter some, the

heightened stakes around what a

no-deal would mean are one reason

there is a growing belief that an

agreement between the UK and EU

will be reached. The end to the stamp

duty holiday in March is also likely to

increase trading volumes in the first

quarter of next year, leading some to

call for an extension as parts of the

conveyancing system struggle to cope.

While prices in PCL and POL are

expected to decline by 3% this year,

an increase of 4% and 5% respectively

is forecast for 2021 as the market

strengthens.

"Activity in the property market is likely to remain

high given the length of time it will take to complete deals

agreed after the market re-opened in May."

TOM BILL

HEAD OF UK RESIDENTIAL RESEARCH

-8%

-4%

0%

4%

8%

Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18 Jan-20

Brexit

Stamp duty hike

Eurozone sovereign debt crisis

Global financial crisis

COVID-19

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0%

0.5%

1.0%

Sep-15 Sep-16 Sep-17 Sep-18 Sep-19 Sep-20

0.8 % 0.3 %0.6 % 1.5 % - 0.9 % 3.0 % - 0.6 %

- 3.4 %

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

- 3.0 %-2 .8 %

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

2 9 W O O L W I C H3 - 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. 2 %

0.8 %

- 3.1 %

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 , S E P T E M B E R 2 0 2 0

23

24

518

714

1

19

29

21

26

28

16

20

22

6

114

9

28

3

13

17

25

12

271510

2 .3 % - 3.3 %

0.5 % - 6. 2 %

0.6 % -1.4 %

- 0.3 % -2 .5 %

-1. 2 %

0. 2 % 0.4 %

0.0 % -1.0 %

0.4 %

- 0.8 % -1.6 %

-1. 2 % - 5.3 %

0.0 % - 0.8 %

2 .8 % - 4.4 %

0.0 % - 3.9 %

0.0 % - 6.3 %- 0. 2 % - 5.5 %

- 0.4 % 1.0 %0.0 % - 4. 2 % 0.5 % - 0.6 % 3.1 % -2 .6 % 1.0 % 0. 7 %

0.0 % - 0.6 % - 0. 2 % - 0.6 %2 .8 % - 4.6 %

-1.8 %

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 The lettings market imbalance is reducing as demand returns and excess supply in the market is absorbed

Predictions that supply levels would

remain low this year in the prime

London lettings market, putting

upward pressure on rents, were

upended by the arrival of the Covid-19

pandemic.

Instead, the combination of

relatively high levels of supply,

which accumulated during and since

the market lockdown, and weaker

demand, has led to the largest annual

rental value declines in more than a

decade. In prime central London, the

annual decline was 8.1% in September.

In prime outer London it was 6.9%

over the same period.

Supply has been driven higher

by the addition of short-term rental

properties onto the market as a

result of the pandemic. Supply

also increased during the market

lockdown as more owners opted to let

their property due to the widespread

uncertainty caused by Covid-19.

Meanwhile, demand in London

and the Home Counties has been

impacted by the presence of fewer

international students and corporate

tenants due to travel restrictions.

However, there are signs the

imbalance is starting to reduce as

supply is absorbed by the market and

demand comes back to some extent,

driven in part by the falling rental

values of recent months, as figure 3

shows.

The number of new prospective

tenants increased by 93% compared

to the five-year average in the week

ending 10 October and the number

has been climbing week-on-week

since September.

While the decrease in rental values

is likely to continue into Q4, the

declines will narrow and eventually

stabilise before rents begin to rise

in 2021 as the marked imbalance

between supply and demand seen

during much of 2020 recedes. Both

PCL and POL rental values are

forecast to grow by 3% in 2021.

Meanwhile, in the final week of

October, the number of viewings

was 97% above the five-year average,

continuing a trend that has been in

place since the summer.

In the same period, the number of

tenancies started was 59% higher than

the five-year average, underlining

how active the market remains,

irrespective of the supply/demand

imbalance.

3 Tenant demand strengthensNew prospective tenants, PCL and POL, rebased to 100 at January 2019

(figures are weekly, which accounts for the drop in Dec 2019)

n 2019 n 2020

4 Annual and monthly % rental change in PCL

n Annual % price change n Monthly % price change

Source: Knight Frank Research Source: Knight Frank Research

0

50

100

150

200

250

Feb-19 Jun-19 Oct-19 Feb-20 Jun-20 Oct-20

-10%

-8%

-6%

-4%

-2%

0%

2%

2018 2019 2020

8.1%

Annual decline in rental values in prime

central London in September due

6.9%

Fall in annual rental values in prime

outer London in September, the largest

decline in more than a decade

3%

Forecast increase in rental values

during 2021 for both prime central and

prime outer London

"While the decrease in rental values is likely to continue

into Q4, the declines will narrow and eventually

stabilise before rents begin to rise in 2021."

TOM BILL

HEAD OF UK RESIDENTIAL RESEARCH

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

P C L - 3 % 4 % 6 % 5 % 4 % 1 7 %

P O L - 3 % 5 % 4 % 4 % 4 % 1 5 %

P R I M E R E G I O N A L 1 % 4 % 3 % 3 % 3 % 1 5 %

U K 2 % 1 % 3 % 4 % 3 % 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.

Tom Bill

Head of UK Residential Research

+44 20 7861 1492

tom.bill@knightfrank.com

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

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 2020 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

Recent Publications

RE

THE LONDON REPORT 2020 HIGHLIGHTS

knightfrank.co

m/rese

arch

Super-PrimeMarket InsightAutumn 2020

Covid-19 and London super-prime

Demand for family houses

International travel restrictions

Supe

r-Pr

ime

Mar

ket

Insi

ght A

utum

n 20

20

The

Lond

on R

epor

t

Global Buyer Survey 2020What impact has Covid-19 had on residential buyers’ attitudes?

knightfra

nk.com

/res

earch

Second homesFuture plans Prices

Glo

bal B

uyer

Sur

vey

2020

T H E G L O B A L P E R S P E C T I V E O N P R I M E P R O P E R T Y & I N V E S T M E N T

2 0 2 0 — 1 4 T H E D I T I O N

T

H

E

W

E

A

L

T

H

R

E

P

O

R

T

2

0

2

0

W E A L T H R E P O R TT H E

Activ

e C

apita

l 202

0

The

Wea

lth R

epor

t 202

0LO N D O N A N D U K P R I C E F O R E CA ST – 2 0 2 0 TO 2 0 2 4

The UK property market has

experienced the most abrupt change

in sentiment in its history since May.

While the market was shut for

eight weeks against the disorientating

backdrop of a global pandemic, the

prophecies about the housing market

were understandably dire.

However, this has not been the

case since the market re-opened in

May. The latest data from the Bank of

England shows mortgage approvals for

house purchase increased from 88,500

in August to 91,500 in September,

the highest figure in three years,

which is just one of several indicators

underlining the strength of the

recovery in the property market.

Against this backdrop, we updated

our UK property market forecasts.

Despite a second national lockdown

in England, our central scenario

remains that double-digit price falls

will not take place. However, we

forecast UK property transactions will

fall by 15% this year compared to 2019.

We believe prices in prime regional

and mainstream UK markets will

outperform prime central and outer

London this year. However, we expect

prime London markets to outperform

over the course of the next five years.

Prices in prime central London have

corrected by more than any other UK

market over the last five years and we

expect this to support growth in the

medium term, boosted by the lifting of

international travel restrictions.

While price growth is likely to be

curbed by a stamp duty surcharge for

overseas buyers next year in PCL, we

would expect stronger upwards pressure

on prices to follow. Prime outer London

will continue to benefit from stronger

demand for outdoor space into 2021.