Prime Central London
Despite recent headwinds, there are reasons to be optimistic about the Prime Central London residential market. Our latest market update shows greater stability during Q2 2017 with transaction levels improving in both the sales and lettings markets.

Sales Market
A Market Divided
Sentiment and pricing in the sub £2m Prime Central London sales market has firmed up during Q2 2017, but the market higher up the value curve remains subdued.
The market below £2m, which represents about two-thirds of transactions in Prime Central London, proved less vulnerable during the recent price correction phase and has also been the most robust segment of the market in the past year as conditions have stabilised, with prices actually higher compared with 12 months ago.
The market below £2m is certainly more free flowing with buyers and sellers eager and willing to trade.
However, this is in stark contrast to the upper-end of the market which is stifled through inactivity, a lack of committed demand and insecurity about pricing. This uncertainty has led to price falls, especially in the £10m+ market.
Transaction Levels Stabilise
Encouragingly, activity in the Prime Central London sales market has stabilised during the last three quarters and on an annual basis has ticked up slightly during Q2 2017.
The number of transactions over the nine months to end-June 2017 has averaged just over 700 sales per quarter, which is a vast improvement on the 500 purchases in Q2 2016 and the 620 in Q3 2016.
These figures mean that the annual total increased from 2,520 sales in the year to Q1 2017 to 2,730 sales in the year to Q2 2017, a 7% uplift.
7% Increase in transactions in year to Q2 2017 compared with a year earlier.
However, while these latest figures are encouraging, current transaction volumes are low by recent and historic standards.
The latest annual total is 29% lower than a year earlier and is 28% lower than the average of the past three years, highlighting the slowdown in the market which has taken place since the EU referendum.
Looking further back, transaction levels averaged a little under 5,500 a year during the five years 2003–2007. So current transaction volumes are half their level of a decade ago.
Price Change Differences
On average Prime Central London sales prices have fallen during Q2 2017, but this masks a difference between property types and values.
Overall, prices have fallen by 0.2% during Q2 which follows a mini-rebound in Q1 when prices increased by 0.7% on average.
0.1% Increase in sales prices in year to Q2 2017
Notably, in the year to Q2 2017 prices increased by 0.1%. This is the first quarter that annual price growth has moved into positive territory since Q4 2014, the quarter that higher rates of marginal stamp duty were announced.
Prices in the sub £2m and the £2–5m markets have remained stable during Q2 2017 and, following marginal increases in the preceding quarters, prices are 1.8% and 0.6% higher respectively over the past year.
The picture is not as positive above £5m. Prices in the £5–10m and the £10m+ markets have fallen both over the past quarter and the past year. In the £5–10m market prices have slipped by 1.6% on average in the year to Q2 2017 while they have declined by 4.6% in the £10m+ market.
Supply Steady
The number of properties on the market has not escalated notably during this period of lower activity.
Indeed, there is a shortage of two bedroom, two bathroom apartments in particular and a lack of available properties in the £2–3m price bracket.
By contrast, in the house rather than the flat market and particularly for houses of more than two stories above £7m, there is an excess of available supply.
A key reason why availability has not risen faster across the market is because many vendors have taken their properties off the market while others have opted to rent out their homes instead.
Outlook
Political uncertainty and a lack of clear and positive direction with regard to Brexit are preventing the Prime Central London sales market from breaking the shackles of this current market malaise.
The market is in need of a catalyst to get it kick-started. There are plenty of vendors ready to sell once the conditions turn more favourable but both domestic and international buyers are biding their time until an upturn is in clearer sight. In dollar-denominated currencies, Prime Central London prices look remarkably attractive compared with two years ago.
We expect the number of transactions to rise through the remainder of 2017, albeit only marginally, and we forecast that price falls at the top end of the market will peter out before the end of the year. The market is steadily rebalancing and should be on a firmer footing come the start of 2018.



Lettings Market
Signs of Recovery
Overall, the Prime Central London lettings market continues to be plagued by oversupply and falling rental values.
However, there are some signs that the market is bottoming out and that a recovery is on its way. This is certainly the case at the lower-end of the market where transaction levels have increased and rental value falls are diminishing.
Transactions Boost
Encouragingly, activity has improved gradually during the first two quarters of 2017. Importantly too, this has been across all property types and value bands.
Transaction levels increased by 3% in Q1 and by a further 1% in Q2 which has boosted the annual total to over 9,670, the highest level in almost three years. Over the past year transaction levels have risen by 6%.
6% Increase in transactions in year to Q2 2017 compared with a year earlier
The activity recovery has been led by the more robust lower-end of the market. The number of lettings in the sub £500 pw market, which accounts for around 30% of all transactions in Prime Central London, has increased by 16% in the year to Q2 2017.
By contrast, the volume of new tenancies agreed in higher price brackets was just 1.9% up in the year to Q2 2017.
Tenant Demand Up
Tenant demand has increased slightly during Q2 and has helped lift turnover. Overall, however, demand remains lower than 2–3 years ago.
Students and families looking for accommodation ahead of the next academic year have been conspicuous by their absence during Q2. Their numbers will undoubtedly grow through the letting market’s busiest quarter in Q3 but these early signs are indicative of a lower demand environment.
The reasons behind the subdued demand are undoubtedly Brexit, which has reduced the number of overseas secondments and relocations to London, while the trend of renters to look at more affordable locations across Central and Inner London has also diverted demand elsewhere. This is particularly the case for younger renters lured by lower rental costs, good connectivity, vibrant neighbourhoods and availability in new or nearly new developments.
The fact that corporate budgets are weighted heavily towards the lowerend of the rent spectrum is not aiding Prime Central London demand while the bargaining tool that tenants are wielding as a result of greater choice is leading to more fall-throughs than normal.
Oversupply Lingers
The fact that corporate budgets are weighted heavily towards the lowerend of the rent spectrum is not aiding Prime Central London demand while the bargaining tool that tenants are wielding as a result of greater choice is leading to more fall-throughs than normal.
Subdued turnover over the past two years, weaker demand and several owners renting out their property having been unable or unwilling to sell, have all contributed to raised supply levels.
The gradual increase in transactions witnessed during the course of the past two quarters will help to lower available supply in the coming quarters, but the very steady increase will take some time to have a meaningful impact.
Rental Falls Slowing
Despite increased turnover, the oversupply of property on the market has led to further rental value falls during Q2.
Rents declined by 1.3% on average during Q2 meaning that they have fallen by 7.9% on average during the course of the past year.
7.9% Fall in rental values in year to Q2 2017
Rents have now fallen for six consecutive quarters and are 11.9% lower than in Q3 2015.
The lower-end of the market has been far more robust than the upper-end during the past 1–2 years. Price falls for rentals below £1,000 pw have averaged just 0.9% during Q2, notably below the 1.3% market average fall. Over the past year, the rental decline of 5.9% in this price bracket is also below the 7.9% Prime Central London average.
These figures are in contrast to the upper-end of the market where rents have fallen by around 10% in the year to Q2 2017.
Outlook
The lower-end of the Prime Central London lettings market is showing signs of stabilisation and we expect the rest of the market to follow suit gradually during the remainder of 2017. However, the current fragility is forecast to hang over the market during this time.
The seasonally more active Q3 will come as a welcome relief and will rebalance the oversupply problem to some extent, but we expect further, albeit more minor, rental value falls during the rest of this year with greater stability returning in readiness for 2018.



To download the report or view more of our Residential research, visit: http://residential.jll.co.uk/new-residential-thinking-home/research
