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Prime London rents set to suffer from Eurozone crisis

Lucy Morton, senior partner and head of lettings comments: “The trend for rental increases in Prime Central London continued in 2011 with an average annual increase of 10%, although we are seeing rents start to plateau as the year closes.

“The Eurozone crisis is slowing down rent increases, something we have particularly noticed over the last month.  However, I say this with caution as historically November is the quietest month of the lettings calendar.  We will be able to establish early in 2012 whether it is the time of year or the economic situation which is applying the brakes.  It is clear that the City is not bringing in so many ex-pats who underpin the lettings values in Central London, the lettings market being an excellent barometer for the City climate.  There is more property coming on to the lettings market, thus addressing the imbalance between supply and demand.

“In November, the national average rent experienced the lowest monthly increase since February, but it is still the ninth consecutive monthly increase and rents have now risen by 2% since the post-crash low in June 2009. The Prime Central London lettings market in both 2010 and 2011 quite literally boomed – rents have now hit an all-time high; approximately 2% above the level reached in March 2008. 

“I believe that in 2012, the lettings market in Prime Central London will suffer more from the Eurozone crisis than the sales market which is underpinned by international buyers flooding in as they see London as a safe haven for their money.  I therefore do not envisage huge price increases in 2012 and unless there is a major exodus from the expat community in the City due to the financial crisis, I believe that rents will continue to plateau, particularly at the top end of the market.  The one to two bedroom market will remain buoyant with demand outstripping supply, mainly due to the High Net Worth international students drawn to London’s colleges and universities.”

Simon Godson, partner in residential sales, adds:  “This year (2011), Prime Central London (PCL) property has once again outperformed the rest of the UK by a considerable stretch, mainly due to international buyers. The UK property market generally has been left ‘treading water’ and would-be buyers are looking carefully at their options before jumping in. It is understandable – after all, buying in the UK has never cost so much and day to day living has increased over the last 9 months with people’s incomes having to stretch further as the months role by.

“So what will 2012 bring for the PCL Market? The ‘Crystal Ball’ question – we believe that buyers will continue to experience a lack of good quality choice with regards stock, and in many cases, sellers’ expectations will need to be managed. We have seen an increase of around 7% in asking prices compared with a year ago, but this is where we have to be realistic as there is still a gap that needs bridging between asking prices and eventual selling prices.

“That said, there are some types of property that are excelling in the current climate, much sought after and hard to come by – lateral apartments, first floor flats, penthouses with rooftop gardens and low built houses. For these, you can expect to pay in excess of £3,000 per sq ft and anything up to £5,000 per sq ft for the best, especially if buying under competition.  For example, there are currently four lateral flats all overlooking prime garden squares in SW1/SW3 with asking figures over £3,500 per sq ft. These properties are generating immense interest – somewhere between 30 to 40 visitors per flat. These are people with circa £15m plus to spend who are unable to find a home, so under pressure, are likely to pay over guide price.

“For those of us with more modest cheque books, the choice will still be limited – new stock is down around 10%. While the uncertainty in Europe and the Middle East continues, we don’t see the market changing substantially. Will London continue to thrive as a safe option for international buyers, and what are the prospects for those of us in the domestic market who are down or upsizing? The answer surely has to be yes, but let’s re-visit the question in July next year when we can see just how many buyers are exchanging Euros for pounds.”

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