Data for the prime central London residential market points in several different directions, suggesting some form of transition is underway.

Prices increased by 0.3% in July, which may signal price growth is slowing as the prospect of a general election and a rise in interest rates fuel short-term uncertainty.

Monthly growth has only been lower twice since January 2011 and four of Knight Frank’s 13 prime central London offices reported flat prices in July. Annual growth slowed to 7.9% from 8.1% in June.

A growing mood of caution has certainly been apparent over the last three months. The number of new prospective buyers was down by a quarter versus July 2013 and the number of viewings fell 10%, resulting in fewer sealed bids and open days.

However, the mood of caution has not yet impacted volumes and the total number of exchanges between January and July was 3% higher than last year.

One of the principal reasons is that vendors have realised demand is cooling and have lowered asking prices. A rising number of

exchanges suggests underlying demand is currently strong.

It is particularly true in higher price brackets and there were more £10 million-plus deals in July than the same month in 2013.

These mixed messages are a symptom of the political and economic backdrop. The guessing game as to whether the Bank of England will raise the base rate before or after Christmas is played after every fresh piece of economic data is announced.

The dampening effect on the prime central London residential market is due to uncertainty surrounding the end of a unique chapter in UK economic history more than the direct financial impact.

A mood of hesitation also surrounds the May 2015 general election and the possibility of tax changes affecting high-value residential property. Political rhetoric is likely to rise after the summer lull and that is when the market is likely to enter pre-general election mode, which will cool growth further.

Annual growth remained in double-digits for the sub-£2 million market and was notably stronger in the area north of Hyde Park and further east, as figure 3 shows.

JULY 2014Monthly growth was 0.3%, which has only been lower twice since January 2011, as annual growth slowed to 7.9%

New prospective buyers fell by 25% while viewings were down 10%

The number of exchanges increased 3% in the first seven months of the year versus 2013

The strongest growth was north of Hyde Park and in eastern areas

Double-digit annual growth was confined to the sub-£2 million price bracket

TOM BILL Head of London Residential Research

“Political rhetoric is likely to rise after the summer lull and that is when the market is likely to enter pre-general election mode” Follow Tom at @TomBill_KF

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

MIXED MESSAGES IN PRIME CENTRAL LONDONInconsistent data for the prime central London residential market suggests it is entering a new phase as a general election and rate rise approach, says Tom Bill

RESIDENTIAL RESEARCH

PRIME CENTRALLONDON SALES INDEX

FIGURE 1 Annual and monthly growth in prime central London

FIGURE 2 Ups and downs in prime central London

Source: Knight Frank Residential Research Source: Knight Frank Residential Research

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

6

8

10

Jul 1

3

Aug

13

Sep

13

Oct

13

Nov

13

Dec

13

Jan

14

Feb

14

Mar

14

Apr

14

May

14

Jun

14

Jul 1

4

-10%

+7.9% +3%

DO

WN

UP

-25%

Price growth

New prospective

buyers

Viewings

Exchanges

% Monthly growth % Annual growth

RESIDENTIAL RESEARCHTom Bill Head of London Residential Research +44 20 7861 1492 tom.bill@knightfrank.com

PRESS OFFICE Daisy Ziegler +44 20 7861 1031 daisy.ziegler@knightfrank.com

© Knight Frank LLP 2014 - 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.

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Three statistics in July underlined how the prime central London rentals market is cementing a recovery that began at the start of this year.

First, rental values grew on an annual basis for the first time since May 2012. Values were 0.5% higher than July 2013 and have grown 1.8% since January.

Second, prime central London rental yields rose for the first time since April 2011. The increase was only 0.01% to 2.81% but the significance is that it ended a 38-month period of decline when sales prices grew strongly and rental values fell.

The third indicator is that the number of prime central London tenancies agreed in July by Knight Frank was the highest ever.

The recovery began as signs of life returned to the UK economy and global companies began to expand and relocate more staff to London on larger accommodation budgets.

As a result, the number of viewings has risen 25.6% since July last year and the number of new prospective tenants rose 16.5% over the same period, as figure 1 shows.

To some degree, a reversal of fortune has taken place between the sales and lettings markets. Growth is slowing in the sales market as the general election and an interest rate rise approach.

The overwhelming mood in the sales market is one of uncertainty, which is leading buyers to become renters and vendors to become landlords, particularly in the prime and super-prime markets where growth in the sales market has slowed to a greater extent.

As a result, rental value growth has been stronger in the higher price brackets and higher for houses than flats. Values for properties over £1,500 per week have risen 0.8% in the last year and 2.2% since the start of the year.

By contrast, rental values for properties between £500 and £1,500 per week are 0.2% down on last July and have risen 1.9% since January.

Given what is happening in the sales and lettings markets, rental yields should continue to climb steadily in the second half of the year.

JULY 2014Annual rental growth returned to prime central London, rising 0.5% since July 2013

It was the first time rents have grown over a 12-month period in more than two years.

Rental yields rose for the first time since April 2011, reaching 2.81%

Highest ever number of tenancies agreed by Knight Frank in July

Viewings rose 26% and the number of new prospective tenants increased 17% since July 2013

TOM BILLHead of London Residential Research

“The overwhelming mood in the sales market is one of uncertainty, which is leading buyers to become renters and vendors to become landlords.”

Follow Tom at @TomBill_KF

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

MILESTONES PASSED IN RESURGENT PRIME CENTRAL LONDON LETTINGS MARKETThe prime central London lettings market continued its recovery in July, which was more pronounced in the higher price brackets, says Tom Bill

RESIDENTIAL RESEARCH

PRIME CENTRALLONDON RENTAL INDEX

FIGURE 1The lettings market recovery…

FIGURE 2…where higher price brackets and houses lead the way

Source: Knight Frank Residential Research Source: Knight Frank Residential Research

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

JULY 2013

+16.5%

+25.6%

JULY 2014

Applicants Viewings Annual growth

1.1%

2.6%

1.7%

2.1%1.8%

£500 - £1,500

pw

£1,500+ pw

Flat House PCL(whole market)

Growth in the last six months

FIGURE 3 Price growth in prime central London by area in the year to July 2014

DATA DIGESTThe Knight Frank Prime Central London Index, established in 1976, is the longest running and most comprehensive index covering the prime central London residential marketplace. The index is based on a repeat valuation methodology that tracks capital values of prime central London residential property. ‘Prime central London’ is defined in the index as covering: Belgravia, Chelsea, Hyde Park, Islington, Kensington, Knightsbridge, Marylebone, Mayfair, Notting Hill, Regent’s Park, St John’s Wood, Riverside* the City and the City Fringe. ‘Prime London’ comprises all areas in prime central London, as well as Canary Wharf, Fulham, Hampstead, Richmond, Wandsworth, Wapping and Wimbledon.* Riverside covers the Thames riverfront from Battersea Bridge

in the west running east to include London’s South Bank. The City Fringe encompasses the half-mile fringe surrounding most of the City including Clerkenwell and Farringdon in the west and Shoreditch and Whitechapel in the east.

Knight Frank Prime Central London Index

KF Prime Central London

Index

12-month % change

6-month % change

3-month % change

Monthly % change

Jul-13 5,836.2 7.2% 4.1% 1.5% 0.5%Aug-13 5,868.4 7.2% 3.7% 1.5% 0.6%Sep-13 5,908.3 7.2% 3.5% 1.7% 0.7%Oct-13 5,955.5 7.2% 3.6% 2.0% 0.8%Nov-13 5,969.0 7.0% 3.2% 1.7% 0.2%Dec-13 6,017.9 7.7% 3.6% 1.9% 0.8%Jan-14 6,043.6 7.8% 3.6% 1.5% 0.4%Feb-14 6,083.4 7.5% 3.7% 1.9% 0.7%Mar-14 6,135.1 7.5% 3.8% 1.9% 0.8%Apr-14 6,182.4 7.5% 3.8% 2.3% 0.8%May-14 6,231.2 7.8% 4.4% 2.4% 0.8%Jun-14 6,278.7 8.1% 4.3% 2.3% 0.8%Jul-14 6,297.3 7.9% 4.2% 1.9% 0.3%Apr-14 6,182.4 7.5% 3.8% 2.3% 0.8%May-14 6,231.2 7.8% 4.4% 2.4% 0.8%Jun-14 6,278.7 8.1% 4.3% 2.3% 0.8%Jul-14 6,297.3 7.9% 4.2% 1.9% 0.3%

Source: Knight Frank Residential Research