RESIDENTIAL RESEARCH

SUPER-PRIME MARKET INSIGHT SUMMER 2019

2

Brexit-related uncertainty has curbed trading activity across all UK residential markets over the last 12 months. While London’s super-prime (£10 million-plus) price bracket is no exception, it would be too simplistic to view this particular market entirely through the prism of UK politics.

First, the demand drivers are more numerous and complex. More wealth is being created in the world than ever before and it continues to move across borders, as our Wealth Report this year found.

Combined with the fact that there are more ultra-high net worth individuals based in London than in any other global city, and that they have a growing propensity to invest in real assets, it is perhaps not surprising that last year saw the highest number of £20 million-plus deals in London (38) since 2014.

Indeed, the total volume and value of transactions above £20 million has been on a broad upwards trajectory over the last nine months, as figure 3 shows.

Overall, there were 109 transactions above £10 million in the year to January 2019, a 19% decline compared to 134 over the previous 12-month period. Meanwhile, the total value of transactions decreased by a smaller figure of 11% over the same period, reflecting the uplift in activity in the higher price brackets.

Notting Hill and Mayfair are the two markets where transaction volumes grew over the same period. While demand in Notting Hill has grown due to the extent of price adjustments in the area and its needs-driven buyer base, Mayfair has benefitted from a high-quality new-build pipeline, as figure 6 shows.

More broadly, the weakness of the pound has sustained demand. The effective discounts available for a range of overseas currencies since the EU referendum are similar to those seen in the 12 months following the collapse of Lehman Brothers, as figure 5 shows.

The second factor that needs to be understood when evaluating the performance of the super-prime market is that pricing has had less far to fall due to its characteristics as a more thinly-traded and discretionary market. This fact, which means previous price increases have been less steep (see figure 2 right), explains why an annual decline of 2.5% in April was half the PCL average.

SUPER-PRIME MARKET INSIGHT Underlying demand for super-prime property remains resilient, as Tom Bill explains

SUPER-PRIME INSIGHT 2019 RESIDENTIAL RESEARCH

London CityAirport

FIGURE 1 Super-prime map of London £10 million-plus sales, 12 months to April 2019

FIGURE 2 Total trough-to-peak price rise (March 2009 to August 2015)

Total number of sales

Regent’s Park

Hyde Park

Number of sales by value

£10m-£20m £20m-£30m £30m+

3

3

1

8

5

2

2 1

1

1

11

5

6

SW10 | £73m

SW3 | £173m

SW7 | £83m

W1 Marylebone | £25m

W1 Mayfair | £374m

W11 | £193m

W14 | £28m

W2 | £51m

W8 | £94m

W9 | £19m

SW1 | £585m

W1B | £45m

W1T | £11m

WC2H | £13m

NW8 | £108m

76%

48%

NW3 | £34mTotal Value of Sales

NW1 | £10m

7

4

4

62

1

31

1

41

3 2

2

1

1

Source: Knight Frank Research

Source: Knight Frank Research

All Prime Central London

£10 million-plus

3

The future feels positive ”Pent-up demand continues to

build as buyers sense good value.

At the same time, a growing

number of vendors are taking

a more pragmatic approach

and engaging with buyers,

which is why we expect future

activity levels to strengthen.

The continuing weakness of the

pound means there has been

a good balance of international

and domestic demand, with

many pricing in the political risk

surrounding Brexit and taking a

long-term view.”

Paddy Dring, Global Head of

Prime Sales

Life cannot be paused any longer “Brexit has become less of an

issue as the can has been kicked

further down the road. People

have been waiting a long time for

a resolution and there comes a

point when they simply have to

move on with their life. There is an

interesting dynamic at play: buyers

are understandably keen to time

their purchase correctly but there

comes a point when life decisions

mean it becomes self-defeating to

hold out any longer.”

Daniel Daggers, Private Office

Competition among buyers returns “Competition has returned among

buyers alongside the “fear of

missing out”. This is mostly seen

for ‘best-in-class’ properties in

good locations, where pricing

has reached its correct level. For

example, recently we have been

involved in a best bids scenario,

after 18 months of marketing

with little interest. I liken it to the

inclination of not wanting to eat in

an empty restaurant – interest from

one person sparks interest from

another.”

Charles Penny, Private Office

Education is a key demand driver “Education remains a key driver

of demand from Hong Kong but

the trend has changed in recent

years. Before, it was largely about

University education but buyers

are now thinking about it earlier

and earlier. It’s harder to get your

kids into local Hong Kong schools

so many families are now thinking

about getting into the best English

schools from the age of 13.

Some parents are starting to think

even further ahead, all of which

is increasing the buyer base for

super-prime London property.”

Mei Wong, Head of International

Residential Sales, Hong Kong

The prime new-build options are narrowing “We have seen a flurry of activity

across build-complete schemes

in prime central London, most

notably in Mayfair and Kensington.

The currency factor has been a

trigger for some decision-making

but a lot of demand also derives

from the fact that the options are

narrowing for finished super-prime

schemes in the prime postcodes.

In April, we saw five reservations in

completed schemes above

£10 million.”

Rupert des Forges, Head

of Prime Central London

Developments

The appeal of real assets “As our Wealth Report showed,

London has the highest number of

ultra-high net worth individuals of

any city in the world and shrugged

off Brexit-related concerns to

claim top spot in the global City

Wealth Index. Real assets are

still seen as a good long-term

store of value. Deals above £25

million, for example, tend to involve

buyers who are as happy to buy a

property as they would buy a plane

or a boat.”

Tom van Straubenzee, Head of

Private Office

Passing peak uncertainty “Transaction volumes will increase

when buyers have more clarity

regarding the resolution of Brexit.

Sentiment is then likely to improve

quickly as we move on from ‘peak

uncertainty’, particularly given how

robust the economic fundamentals

are. Best-in-class stock, whether

fully-serviced lateral apartments

or low-build family houses with

large gardens, remain the most in-

demand properties for capitalised

and active buyers. ”

Rory Penn, Head of Private Office

2019/20 OUTLOOK AGENT PERSPECTIVE Knight Frank’s agents in the super-prime market share their perspective on some of the key trends.

Sentiment is then likely to improve quickly as we move on from ‘peak uncertainty’, particularly given how robust the economic fundamentals are.“

SUPER-PRIME INSIGHT 2019 RESIDENTIAL RESEARCH

FIGURE 3 £20m+ market activity Rolling annual total

Jan-

18

Mar

-18

May

-18

Jul-1

8

Sep-

18

Nov

-18

Jan-

19

0

5

10

15

20

25

30

35

40

£0.6bn

£0.9bn

£1.2bn

£1.5bn

Source: Knight Frank Research

Volume of sales Value of sales

4

Important Notice © Knight Frank LLP 2018 - 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.

Paddy Dring Global Head of Prime Sales +44 20 7861 1061 paddy.dring@knightfrank.com

PLEASE GET IN TOUCH If you are looking to buy or sell or would just like some property advice, we would love to hear from you.

SUPER-PRIME INSIGHT 2019 RESIDENTIAL RESEARCH

REPORTS

BUYERS POISED FOR END OF BREXIT UNCERTAINTY

OWNERS SWITCH BETWEEN SALES AND LETTINGS MARKETS

UK ECONOMIC INDICATORS REMAIN POSITIVE

LONDON RESIDENTIAL REVIEWSUMMER 2019

RESIDENTIAL RESEARCH

There were a total of 131 super-prime (£5,000-plus per week) tenancies agreed in London in 2018, which was marginally lower than a figure of 136 recorded during 2017.

Despite this relatively flat performance, the number of deals last year was more than a fifth higher than 2016 or 2015. It suggests that super-prime lettings activity has stabilised after two years of strong growth, as figure 1 shows.

Demand has risen in recent years in response to the more adverse tax landscape in the sales market and, more recently, political uncertainty related to Brexit. Higher transaction costs and the associated price declines in the sales market meant that more would-be buyers became tenants.

However, a growing belief among some that pricing in the super-prime sales market may be near the bottom means activity could be flatter in the lettings market, says Tom Smith, head of super-prime lettings at Knight Frank.

“Super-prime lettings activity experienced a gear-shift in recent years and now I sense the market may be reaching a plateau,” said Tom. “We have a number of prospective tenants who are looking at the sales market more closely

after the re-pricing that has taken place. Some recent high-profile sales have helped boost sentiment in this regard.”

Despite this shift, the changeable and increasingly stringent global tax environment means demand for super-prime lettings properties will remain strong, said Tom.

“Tax and regulatory changes around the world mean some have reacted by becoming more footloose and would rather rent rather than buy,” he said.

While such tenants typically look for apartments or penthouses that are serviced by five-star hotels, there is a lack of supply for this type of property in the highest price brackets. Apartments represented 40% of super-prime lettings listings in 2018, down from 47% in 2016, LonRes data shows.

This tightnening supply means landlords can charge a premium for the highest-value apartments, said Tom.

“A best-in-class house will rent for approximately £130 per square foot per year. However, the figure is closer to £230 for the best apartments.”

While activity in the super-prime lettings market is not accelerating at the same pace as previous years, long-term tenant demand will remain strong, as Tom Smith tells Tom Bill

8 Wilton Crescent, guide price £25,000 per week

46 Avenue Road, guide price £17,000 per week

LONDON SUPER-PRIME LETTINGS INSIGHT SPRING 2019

FIGURE 2 London super-prime lettings volumes and achieved rental values

FIGURE 1 The super-prime lettings market plateaus £5,000-plus per week tenancies agreed, annualised

% change

0

10

20

30

40

50

Q1-

2014

Q2-

2014

Q3-

2014

Q4-

2014

Q1-

2015

Q2-

2015

Q3-

2015

Q4-

2015

Q1-

2016

Q2-

2016

Q3-

2016

Q4-

2016

Q1-

2017

Q2-

2017

Q3-

2017

Q4-

2017

Q1-

2018

Q2-

2018

Q3-

2018

Q4-

2018

£12.5k £20k £23k £13k £17k £15k £19k £45k £30k £35k £45k £14k £20k £29k £25k £30k £19k £30k £25k £27k

£6,000

£8,000

£10,000

Tota

l let

s

Ave

rage

rent

al v

alue

Total Transactions Average weekly rental value Maximum weekly rental value

Source: Knight Frank Research / LonResSource: Knight Frank Research / LonRes

Tom Smith Head of Super-Prime Lettings tom.smith@knightfrank.com +44 20 7881 7730

Please get in touchIf you’re thinking of letting your property, renting in London or would just like some property advice, please do get in touch, we’d love to help

-10%

0%

10%

20%

30%

Jan-

17

Mar

-17

May

-17

Jul-1

7

Sep-

17

Nov

-17

Jan-

18

Mar

-18

May

-18

Jul-1

8

Sep-

18

Nov

-18

Jan-

19

London Review Summer 2019

London Super Prime Lettings Spring 2019

THE GLOBAL ULTRA-PRIME

MARKET 2019

RESIDENTIAL RESEARCH

PRIME LONDON SALES INDEX

MAY 2019

PRIME CENTRAL LONDON

PRIME OUTER LONDON

Prime central London index | 5,586.7

Prime outer London index | 125.2 Annual change | -4.3%

Annual change | -5.0%

Monthly change | 0.0%

Monthly change | -0.3%Quarterly change | -0.8%

Quarterly change | -0.2%

Figure 1 The number of exchanges above £2 million rose by 1% in the year to April compared to the previous 12-month period. There was a 9% decline across all price brackets, which underlines how pent-up demand in higher-value markets is being released to a greater extent following stamp duty-related price adjustments.

Figure 2 This same trend is borne out by the fact that transaction volumes across all price brackets are rising to a greater extent in higher-value areas of the capital. In central London neighbourhoods, exchanges rose by 7% in the year to April, while the increase was 17% in north London, according to Knight Frank data.

Figure 3 Viewings have risen for properties worth more than £2 million. There were 3% more viewings in the first quarter of this year than the same period last year, the first such increase since 2017.

Figure 4 The number of offers made by buyers has risen by more than a quarter since the start of last year. Over the same period, the number of new properties listed for sale has fallen by over a third, underlining the relatively advantageous position for active vendors, particularly should the current political uncertainty recede.

The prime London sales indices are based on repeat valuations of second-hand stock and do not include new-build property, although units from completed developments are included over time.

FIGURE 4

Pent-up demand continues to build Rebased to 100

Source: Knight Frank Research / LonRes

FIGURE 2

Exhanges rise in higher-value markets Annualised % change

Source: Knight Frank Research

FIGURE 1

£2m-plus exchanges increase Annualised % change

Source: Knight Frank Research

FIGURE 3

Viewings above £2 million increase Annualised % change

Source: Knight Frank Research

Central London North London

Offers made New Properties Listed for Sale

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

Jun-

16Au

g-16

Oct

-16

Dec-

16Fe

b-17

Apr-1

7Ju

n-17

Aug-

17O

ct-1

7De

c-17

Feb-

18Ap

r-18

Jun-

18Au

g-18

Oct

-18

Dec-

18Fe

b-19

Apr-1

9

-15%

-10%

-5%

0%

5%

10%

15%

20%

Q1-

17

Q2-

17

Q3-

17

Q4-

17

Q1-

18

Q2-

18

Q3-

18

Q4-

18

Q1-

19

30405060708090

100110120130140

Jan-

18Fe

b-18

Mar

-18

Apr-1

8M

ay-1

8Ju

n-18

Jul-1

8Au

g-18

Sep-

18O

ct-1

8N

ov-1

8De

c-18

Jan-

19Fe

b-19

Mar

-19

Apr-1

9

-30%

-20%

-10%

0%

10%

20%

Jan-

18Fe

b-18

Mar

-18

Apr-1

8M

ay-1

8Ju

n-18

Jul-1

8Au

g-18

Sep-

18O

ct-1

8N

ov-1

8De

c-18

Jan-

19Fe

b-19

Mar

-19

Apr-1

9

Global Ultra-Prime Market 2019

Prime Central London Sales May 2019

Prime Country House Index Q1 2019

RESIDENTIAL RESEARCH

Tom Bill Head of London Residential Research +44 20 7861 1492 tom.bill@knightfrank.com

FIGURE 4 The location of London super-prime sales £10 million-plus sales by area, % share of the overall London market

FIGURE 5 Effective discount for £10m+ property (Currency change + price movement)

FIGURE 6 Median £/PSF in the London super-prime market Existing homes and new-build properties

0%

5%

10%

15%

20%

25%

Belg

ravi

a

Che

lsea

Ham

pste

ad

Kens

ingt

on

Knig

htsb

ridge

Mar

yleb

one

May

fair

Not

ting

Hill

Oth

er

Volume of SalesValue of Sales

2017

2018

2019

Bays

wat

er

Sout

h Ke

nsin

gton

St J

ohn’

s W

ood

PCL

USD

PCL

CH

F

PCL

SGD

PCL

RUB

PCL

MYR

PCL

INR

PCL

HKD

PCL

EUR

PCL

CN

Y

PCL

AED

-25%-20%-15%-10%-5%0%

Since EU referendum (June 2016 to May 2019) Mid-October 2008 to mid-October 2009 (GFC)

£4,275 £3,673 £4,261

£3,659£3,235

£3,313£4,441

£3,385 £3,219 £2,901£3,040

£3,312£3,144 £2,632

£3,008

£3,024£3,025 £2,550

£2,881

£3,005£2,467£2,844

£2,867

£2,781£2,426£2,642

£2,750£2,466

£2,415£2.613

£2,618£2,142

£2,406£2,449

£2,560 £1,640£2,174£1.983

£1,1446 £1,385 £1,988£1,680

Mayfair

Year to April 2016 Year to April 2017 Year to April 2018 Year to April 2019

KnightsbridgeSouth

KensingtonMarylebone

Kensington

Chelsea

Belgravia

Notting Hill

St John’s Wood

Bayswater

Hampstead

Source: Knight Frank Research Source: Knight Frank Research

Source: Knight Frank Research

The Wealth Report 2019