JLL’s Q2 Prime Central London research shows signs of stablisation in the sales market with an increase in transaction levels and prices holding firm at the lower end of the market. Activity has picked up in the lettings market during Q2 but rental values declined by an average 1.3% as oversupply issues persist.
The sub-£2m sales market, which represents two-thirds of transactions in Prime Central London, has been the most robust over the past year as conditions have stabilised, with prices actually 1.8% higher compared with 12 months ago. However, this is in contrast with the upper-end of the market which is seeing a lack of committed demand and insecurity around pricing. Prices in the £5m-10m and the £10m+ markets have fallen by 1.6% and 4.6% respectively in the year to Q2 2017. Overall, sales prices have fallen by 0.2% during Q2, however, 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, when higher rates of marginal stamp duty were announced.
The number of transactions over the nine months to end-June 2017 has averaged just over 700 sales a quarter, which is a vast improvement on the 500 purchases in Q2 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 9% uplift. However, while these latest figures are encouraging, current transaction volumes are low by recent and historic standards.
Richard Barber, Director of sales at JLL, comments: “In spite of recent political turmoil and the uncertain direction of Brexit negotiations, it is heartening to see the uplift in transactional volumes. Whilst much is made of the scarcity of transactions at the top of the market, it is actually the case that sales volumes have increased marginally in the first half of 2017compared with 2016 for properties between £5m and £10m and stayed broadly the same above £10m.
“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.”
Encouragingly, activity in the Prime Central London lettings market has improved gradually during the first two quarters of 2017. Importantly too, the increased activity is 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%.
The activity recovery has been led by the more robust lower-end of the market. The number of lettings in the sub £500 p/w 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 has increased slightly during Q2 and has helped lift turnover. Despite this, the oversupply of property on the market has led to further rental value falls during Q2. 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 p/w have averaged 0.9% during Q2, notably below the 1.3% market average fall. 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.
The key issue for the Prime Central London lettings market is an oversupply of available properties evident across all price ranges. 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. Furthermore, tenants are bargaining with the choice available to them. 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.
Lucy Morton, Head of Residential Agency at JLL, adds: “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. The seasonally more active Q3 will come as a welcome relief and will rebalance the oversupply problem to some extent. We expect further, but more minor, rental value falls during the rest of this year with greater stability returning in readiness for 2018.”