RESIDENTIAL RESEARCH

BUYER PROFILE ANALYSIS PRICE PERFORMANCE COMPARED WALK-TIME MAP

FOCUS ON: MARYLEBONE & REGENT’S PARK 2016

2

MARYLEBONE & REGENT’S PARK

These factors have contributed towards the Marylebone now being seen as a popular location for prime and super-prime residential development – rivalling the traditional super-prime ‘hubs’ of Kensington and Chelsea. The regeneration of the area has been steered and overseen by two of the great estates, the Howard de Walden Estate and the Portman Estate.

The Howard de Walden Estate played a major role in establishing Marylebone High Street as one of London’s premier shopping destinations, carefully curating the retail space and creating a locality which is now renowned for its emphasis on independent businesses.

The Portman Estate, meanwhile, has proved instrumental in attracting businesses to a previously overlooked area to the north of Oxford Street. Chiltern Street is now home to some of London’s finest restaurants and boutique shops after the estate took over the management of its retailing in 2009.

Over the past decade, Knight Frank’s Wealth Report has ranked the top global cities that matter most to the world’s wealthy, in terms of where they want to live, work, grow their business, network, educate their children and enjoy the lifestyle. London and New York have always vied for the top spot, but in 2015 and 2016, London is in top position.

The vast improvement to the public realm in the last 10-15 years has been a catalyst in establishing Marylebone as an economic and residential centre, now competing against London’s more established and historic locations.

The two estates have also played a key role in the delivery of new homes in Marylebone, accounting for over a third of the developments completed in the last five years. While the area has become more attractive for residents, some 300 units have been built in the area since the start of 2011, averaging fewer than 50 a year. Some 217 units are currently under construction and due to be completed in the coming years, while there is potential for 127 further residential units which have been granted planning.

The delivery of new homes has coincided with residential values in the area having risen by 46% since the start of 2011. As a result, price growth in Marylebone has outperformed the neighbouring areas of Mayfair and St John’s Wood as well as the wider prime central London market over this time-frame.

Despite this, across prime central London, the market is still adjusting

MARYLEBONE

Please refer to the important notice at the end of this report

COMPLETED DEVELOPMENTS 2011-2015

DEVELOPMENTS UNDER CONSTRUCTION1075

51+ UNITS26-50 UNITS10-25 UNITS1-9 UNITS

10723

51+ UNITS26-50 UNITS10-25 UNITS1-9 UNITS

1-9 units 10-25 units 26-50 units 51+ unitsCompleted Developments 2011-2015 23 7 0 1Developments under construction 5 7 0 1

OXFORD1 HR 20 MINS

FIGURE 2

Size of developments in Marylebone

Source: Knight Frank Research

Source: Knight Frank Research

FIGURE 1

HPI growth comparison

90

100

110

120

130

140

150

Jan16

Jan15

Jan14

Jan13

Jan12

Jan11

MaryleboneMayfairSt John’s WoodPrime central London

Most Important cities to UHNWIs

1 London

2 New York

3 Singapore

4 Hong Kong

5 Dubai

6 Shanghai

7 Paris

8 Sydney

9 Beijing

10 Geneva

3

FIGURE 4

Age of buyers in Marylebone & Regents Park, last 2 years

MARYLEBONE & REGENT’S PARK RESIDENTIAL RESEARCH

prices and proximity to parks in the capital, although it acknowledged that the type of housing stock may have had an influence. This price differential grew even more notable in and around Royal parks.

Price growth in and around Regent’s Park is not uniform, as shown in figure 3. However, residential prices to the south of the park, next to Marylebone, have outperformed to a notable extent when compared to average growth seen over the last two in the wider area, including the Hyde Park Estate and Mayfair.

The scarcity of new stock coupled with the nature of the existing housing stock, as well as the world class amenities now on offer close by in Marylebone, will serve to underpin this market. In fact, both Regent’s Park and Marylebone have been recently tipped by Knight Frank as future ‘golden postcodes’ for super-prime development, joining the roster of Chelsea, Belgravia, Kensington and Knightsbridge.

Source: Knight Frank ResearchSource: Knight Frank Research

FIGURE 3

Over/under performance of house prices against the area outlined 2014-2016

<2070+

16%40-4919%

50-59

7%60-69

5%30-39

20-29

AGE OFBUYERS

2%1%1%

Up to 9% outperformance

up to 7% under performance

In line with the area outlined

Over/Under performance

to changes made to stamp duty in December 2014, and the extra 3% stamp duty introduced for the purchase of additional homes in April this year. As a result, price growth has slowed in many locations. However, Marylebone has seen only a modest 1.7% decline in prices in the year to August 2016, compared to steeper falls in more western areas of prime central London. Since 2009, prices are up by a cumulative 72%.

While Marylebone has performed well as an investment option in recent years, the area retains an enduring appeal to buyers of all ages. In the last two years over two-thirds of buyers were aged 40-59 years old, with one in ten buyers aged under 30.

Regent’s ParkHaving cemented its standing as a prime central London location, Marylebone’s success has extended into neighbouring areas such as Fitzrovia and, more prominently, Regent’s Park.

Like Marylebone, another of the Great Estates has played an active role in this market, with Regent’s Park in the ownership of the Crown Estate (it has been ever since it was acquired by Henry VIII in the 16th Century). The 11 terraces, squares and crescents that border the Royal park are considered amongst the most exclusive addresses in the capital. Knight Frank research from 2014 showed strong correlation between higher house

72%cumulative price growth in Marylebone since 2009

Residential sales activity in prime central London was stronger this August than last year, though remained relatively subdued due in part to the seasonal summer lull.

However, there are grounds for cautious optimism that activity will intensify over the next few months, as recent stamp duty increases and, to a lesser extent, the vote to leave the European Union continue to act as catalysts for overdue price adjustments.

While there remains a high level of speculation over the impact of Brexit on the prime London property market, it remains too early to discern its likely long term impact.

As with the broader economy, any profound change in performance will only become clearer over the next year or two, depending on the outcome of a protracted period of negotiations between the EU and the UK.

While Brexit has added to a backdrop of political and economic uncertainty, it has also acted as an incentive for action in the two months since the vote.

Buyers denominated in overseas currencies are benefitting from an effective discount of more than 10% since the start of the year due to the depreciation of Sterling. Meanwhile, Brexit has been the trigger for some vendors to reduce

asking prices to levels that take higher rates of stamp duty and the new economic and political climate into consideration.

Prices in prime central London fell -1.8% in the year to August, the steepest decline since October 2009. There remain differences across the region, with the largest annual decline of -8.9% in Chelsea, compared to positive growth of 0.7% in Mayfair and smaller declines of -0.9% in Marylebone and -0.8% in Belgravia. Meanwhile, the recent declines in Knightsbridge appear to be bottoming out as asking prices align with higher expectations..

Despite the summer lull, leading indicators of activity remain strong. In the eight weeks following the referendum, the number of new prospective buyers rose 22.1% compared with the same period in 2015, as figure 2 shows. The number of properties under offer rose 19%, while viewing levels increased by almost half.

It is still early for firm conclusions of future market moves following the EU referendum, however the worst of the initial forecasts appear to have been avoided to date. The tentative improvement in some demand indicators provide grounds to believe the prime central London market is set for at least a modest recovery in trading volumes, whether this translates into an uptick in pricing is less clear.

August 2016There has been a 22.1% rise in the number of new prospective buyers since the EU referendum versus 2015

The number of properties under offer in the eight weeks since Brexit rose 19% compared to last year

Web viewings grew by 20.8% while viewings increased by 49% compared to last year

Annual price growth declined to -1.8%, the steepest decline since October 2009

Macro View: Brexit and the new-build market

“Despite the summer lull, leading indicators of activity remain strong” Follow Tom at @TomBill_KF

For the latest news, views and analysis on the world of prime property, visit Global Briefing or @kfglobalbrief

CAUTIOUS OPTIMISM FOR THE PRIME CENTRAL LONDON MARKETDespite the seasonal summer lull, there are grounds to believe activity will increase in the autumn, says Tom Bill

RESIDENTIAL RESEARCH

PRIME CENTRALLONDON SALES INDEX

FIGURE 1 Price growth performance in prime central London

Source: Knight Frank Research Source: Knight Frank Research

FIGURE 2 Post-referendum market performance Eight weeks following the EU-referendum versus

equivalent period in 2015

TOM BILL Head of London Residential Research

12-month change 6-month change Quarterly change Monthly change

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

Aug-

15Se

p-15

Oct-1

5No

v-15

Dec-

15Ja

n-16

Feb-

16M

ar-1

6Ap

r-16

May

-16

Jun-

16Ju

l-16

Aug-

16

22.1%

49.1%

Web viewsProperties under offer

New prospective

buyers

19%

Viewings

20.8%

Transaction volumes remained strong in the prime central London lettings market in August, as rising supply kept the balance of power tipped in favour of tenants.

Supply has increased steadily over the last year due to uncertainty over price growth in the sales market following a series of tax rises and, to a lesser extent, the potential impact of the UK’s decision to leave the European Union.

As a result, the number of new properties placed on the market in the three months to July 2016 increased 38.9% versus 2015, as figure 2 shows.

At the same time, viewing levels and the number of tenancies agreed were both up by a fifth.

Meanwhile, demand has grown among tenants who are opting to rent rather than pay increased levels of stamp duty until more certainty returns in the sales market. The number of new prospective tenants increased 7.2% over the same three-month period.

As supply increases at a faster rate than demand, it means landlords have to show increased levels of flexibility when negotiating

with tenants. In addition to levels of rent, this includes flexibility around break clauses, works to the property, levels of furnishing and payment arrangements.

The last time the balance of power was so firmly with the tenant in prime central London was in the immediate aftermath of the financial crisis, although demand is stronger now than it was in 2008 and 2009.

Annual rental value growth in July was -4.1%, which is the lowest it has been since December 2009. However, activity is stronger in lower price brackets, as figure 4 shows, and demand remains stronger for apartments than the family house market. Demand from corporate tenants also remains stronger than it was in 2015.

August was a strong month in the super-prime £5,000-plus per week market, with deal volumes up on the same month last year. However, due to the mood of cautious optimism returning to the sales market, some would-be landlords plan to wait until later this year before renting out their property in the expectation that demand in the sales market will strengthen.

August 2016The number of new rental properties placed on the market in the three months to July rose 38.9%

The number of new prospective tenants increased 7.2% in the three months to July

The number of tenancies agreed increased by a fifth

Rental values declined -4.1% in the year to July 2016

Average gross prime yields were flat at 3.1%

Macro View: Brexit and the new-build market

“The last time the balance of power was so firmly with the tenant in prime central London was in the immediate aftermath of the financial crisis”Follow Tom at @TomBill_KF

For the latest news, views and analysis on the world of prime property, visit Global Briefing or @kfglobalbrief

ACTIVITY INCREASES AS RENTAL VALUES DECLINE IN PRIME CENTRAL LONDONLandlords in prime central London are having to show increased levels of flexibility as stock levels rise, says Tom Bill

RESIDENTIAL RESEARCH

PRIME CENTRALLONDON RENTAL INDEX

FIGURE 1 Rental value growth in prime central London

Source: Knight Frank Research

FIGURE 2 Lettings market key indicators Three months to July 2016 versus 2015TOM BILL

Head of London Residential Research

12-month change 6-month change Quarterly change Monthly change

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

Aug-

15Se

p-15

Oct-1

5No

v-15

Dec-

15Ja

n-16

Feb-

16M

ar-1

6Ap

r-16

May

-16

Jun-

16Ju

l-16

Aug-

16

Source: Knight Frank Research

38.9%

20.3%

New prospective

tenantsTenancies

agreed

New properties placed on the market

20%

Viewings

7.2%

This report analyses the performance of single-unit rental properties in the second-hand prime central London market between £500 and £5,000-plus per week. For an analysis of the build-to-rent market and the institutional private rented sector in London and the rest of the UK, please see our Private Rented Sector Update report here.

Prime Central London Sales Index - Aug 2016

Prime Central London Rental Index - Aug 2016

Important Notice © Knight Frank LLP 2016 – This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank LLP for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank LLP in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank LLP to the form and content within which it appears. Knight Frank LLP is a limited liability partnership registered in England with registered number OC305934. Our registered office is 55 Baker Street, London, W1U 8AN, where you may look at a list of members’ names.

For the latest news, views and analysison the world of prime property, visit

KnightFrankblog.com/global-briefing

GLOBAL BRIEFING

RESIDENTIAL RESEARCH

Gráinne Gilmore Head of UK Residential Research +44 20 7861 5102 grainne.gilmore@knightfrank.com

David RamsdaleSenior Analyst +44 20 3866 8038 david.ramsdale@knightfrank.com

LONDON RESIDENTIAL

Meriam Makiya Partner +44 20 7861 5487 meriam.makiya@knightfrank.com

Christian Lock-Necrews Partner +44 20 3435 6441 christian.lock-necrews@knightfrank.com

Knight Frank Research provides strategic advice, consultancy services and forecasting to a wide range of clients worldwide including developers, investors, funding organisations, corporate institutions and the public sector. All our clients recognise the need for expert independent advice customised to their specific needs.

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The Wealth Report 2016

2016

10th Edition

THE WEALTH REPORTThe global perspective on prime property and investment

5 mins

Walking times fromParsons Green

10 mins

15 mins

25 mins

Primary schools

Secondary schools

6th form colleges

Underground stations

Railway stations

Tennis courts

Knight Frank offices

up to 5 mins up to 10 mins up to 15 mins up to 25 mins

WALKING TIMES FROM PARSONS GREEN

Secondary schools

6th form colleges

Underground stations

Railway stations

Tennis courts

Knight Frank offices

Primary schools Secondary schools

Sixth-form colleges Underground stations Railway stations Knight Frank offices

Source: Knight Frank Research

FIGURE 5 Regent’s Park walk-time map

ConnectivityRegent’s Park and Marylebone are well connected with five main line railway stations within walking distance. All stations provide national services while Heathrow Airport is a 15 minute train journey from Paddington. Meanwhile, the Euro Star runs from St Pancras. Moreover, Crossrail stations at Paddington and Bond Street will increase the area’s connectivity further.

Given its central location the area provides easy access to numerous world class schools and universities, easily reached by tube or within walking distance (figure 5). Furthermore, the

shopping hotspots of New Bond Street, Mount Street and Regent Street, along with the various boutiques in Mayfair, are all within the areas vicinity.

OutlookIn the short-term, leading indicators of activity have picked up in the prime central London market since Brexit, although uncertainty remains until the shape of the UK’s exit from the EU starts to become clear. Taking a longer-term view, London will remain a global financial and cultural hub, with established areas such as Marylebone likely to benefit from their location and amenity.