Prime London property market update (Oct 2021)

The upper end of the prime sales market had a busy third quarter, with the number of homes sold at £2 million or more up 5% on Q3 2020 and 21% higher than the 2015 to 2019 average. Prices are rising too, with both houses and flats recording annual increases in September. For lettings, those looking to renew a rental agreement or searching for a new property to rent may be in for a shock. Tenants are entering a very different market now from those looking even six months ago. Across prime London stock levels have fallen by 68% compared with the same point a year ago. This in turn has seen rents rise to pre-pandemic levels as tenants compete for somewhere to live.

Sales Market

2021 has been a busy year for transactions across prime London. The number of properties sold between January and September was 66% higher than the same period in 2020 and 32% up on the 2015 to 2019 average. Indeed, the number of properties sold in the first nine months of 2021 was 11% higher than the total sales recorded for the whole of 2020 and just 3% lower than the whole of 2019. Following busy first and second quarters, a slowdown was expected in Q3, however the number of new properties reaching the market was 3% higher than the Q3 five-year average. We saw fewer sales in the third quarter, with deals pushed in to Q2 to beat the 30 June stamp duty deadline. But volumes here too were more robust than we had expected. Activity was down just 8% on 2020 and 13% on the 2015 to 2019 average. The upper end of the market was particularly busy this quarter - Q3 saw a drop in sales at below £2 million, but above £2 million sales increased, with 15% more sales between £2 million and £5 million, and 39% more at £5 million+ compared with the 2015 to 2019 average. 

However, comparing sales in September alone shows prices have risen by 2.1% compared with the same month in 2020. Houses continue to outperform flats, with annual increases of 1.0% recorded for flats compared with 4.6% for houses in September. Improving market conditions also meant buyers were not able to negotiate as significant a discount on asking prices. Over Q3 2021 the average discount off the initial asking price fell to 6.9%, down from 7.2% in Q2 2021 and the lowest since Q4 2015. With the number of completed sales in the first nine months of 2021 already on a par with full year 2019 volumes, there is little doubt that 2021 will be a busy year for sales across prime London. But it appears that we could be in for a busy end to the year too - under offer data, a lead indicator, suggests activity could rise again as we move into the autumn and winter. The number of properties put under offer has been higher than the five-year (2015 to 2019) average every month bar July this year. With the number of properties put under offer up 12% in August and 11% in September.

Lettings Market

The prime lettings market has always been quick to react to changes in levels of demand from prospective tenants and new supply reaching the market. A year ago, high stock levels meant tenants were able to negotiate on asking rents, resulting in falls in achieved rents month-on-month until early 2021. Yet, since the Spring, we have seen the situation change. The prime London lettings market now in a very different position from where it was just a few months ago. A dramatic fall in prime London rental stock is forcing rents to rise. The number of properties available to rent across prime London in September was down 68% on September last year and 38% on 2019, while rents were 11.7% higher than a year ago. Achieved rents are now back to their pre-lockdown peak, with values across prime London 0.4% higher in September 2021 than February 2020.

This represents a significant turnaround in fortunes for the prime rental market which just over six months ago was reporting annual falls in achieved rents of 19%. While stock levels are down across the whole of prime London, some areas have been particularly hard hit - in Battersea, Clapham and Wandsworth the number of properties available to rent was down by almost two-thirds (67%) compared to September 2019. North of the river in Pimlico, Westminster and Victoria, annual stock levels were down 65% on September 2019 and by 71% on 2020. New properties to the market, which add to the overall rental stock, have fallen too. So far this year, there have been 15% fewer new listings compared with 2020 and 27% fewer than the fiveyear (2015-2019) January to September average. Against this backdrop, tenants have looked to renew their lease rather than move. This in turn has led to a fall in the number of properties let. The number of properties let in Q3 2021 was down 6% on the same three months in 2020 and 13% lower than 2019. Increased competition from tenants chasing fewer properties means that discounts have fallen too. In September, an average of 2.4% was negotiated off initial asking rents - a contrast to March, when average discounts were running at 10%. Looking ahead we expect low stock levels will result in further increases in achieved rents over the coming months.