Prime London house sales and lettings continued to rise in March as demand in the capital rebounded after the pandemic, according to Knight Frank.
In prime central London, average prices grew by 2.1% in the year to March, the strongest annual rate of growth since May 2015, with sales driven by the re-opening of the economy as well as relatively good value properties on the market. These rising sales come after six years of subdued activity.
Landlords remain in the driving seat across the rental market in London and the Home Counties, as low supply and high demand mean that average rental values in prime central London increased by 3.5% in the first three months of the year. In prime outer London, there was a rise of 2.5%.
The estate agent says a more detailed look at the London sales market shows that average prices in prime central London are 16% lower than they were at the start of 2016. That compares to a 9% decline in prime outer London and a 13% increase in country markets.
The number of new prospective buyers in prime central London was 84% higher than the five-year average in the first quarter of this year, underlining the strength of demand. That compared to an increase of 71% across the whole of London and 42% in UK regional markets.
But the monthly report says: “The key influence on the future performance of the market will be the return of international buyers.
“Given the current extent of lockdowns in some parts of the world, the return is likely to be more gradual than transformational. This suggests stronger price growth will only return next year when overseas demand starts to exert more of an impact.”
The report adds the opposite is likely to be the case for prices in prime outer London, which the firm expects to peak this year.
Average prices increased by 4.4% in the year to March, which was also the strongest rate of growth since May 2015.
While prime outer areas of the capital continue to benefit from the race for space, the firm expects demand to soften as mortgage rates rise and the cost-of-living squeeze increases. Rising supply will also push prices down.
The estate agent’s lettings report says that annual growth hit record levels after falling in the early months of last year when the market became flooded with short-let rental properties due to pandemic staycation rules.
Average rental values jumped by 21% in prime outer London and by 26.3% in prime central London in the year to March. Rents are now 8.2% higher than they were before the pandemic in prime central London and 7.2% in prime outer London.
The lettings report says: “We would expect annual growth to return to single digits later this year due to the equally steep rise in rents that took place in the second half of last year.”
Knight Frank head of lettings Gary Hall adds: “Demand is still outstripping supply. It’s good news for landlords as it means void periods are very short.
“For tenants, it is still a tough market and decisions need to be taken quickly. It has been this way for nine months and I can’t remember seeing these sorts of conditions for this length of time.”
The report says that although supply is picking up, demand is growing more quickly.
The number of market valuation appraisals – a leading indicator of supply – was 25% higher in the year to March than in the previous 12 months. At the same time, the number of new applicants was 48% higher.
Also, the number of leads from relocation agents last month hit their highest level since August 2019, a sign that demand from overseas tenants will remain strong, the report says.
It adds: “Despite the clear direction of travel over the last 12 months, there are early indications that more balanced market conditions are set to return, particularly as some of the heat comes out of the sales market.”
Knight Frank’s Hall adds: “There is no real pattern yet but we have noticed stock levels start to pick up in pockets across London. It may be that some owners have attempted to sell and have not achieved their asking price.”
