No winter slowdown for the Prime Central London residential market
12 December 2006
Prime central London property prices grew by 2.8% in November making it the ninth month in which prices have grown by over 2% since the start of the year, according to the latest Knight Frank Prime Central London Residential Sales index.
Annualised price growth currently stands at 26.6%, the highest since June 1988.
For the second year in a row the City bonus season appears to have ended the traditional winter market slowdown.
Even before bonus money has been received its impact has begun to be felt on the prime Central London property market.
Knight Frank’s Head of Residential Research, Liam Bailey, comments:-
The big story over the past 18 months in central London has been sharp demand growth, met with an equally sharp downturn in supply. The tight market conditions have helped push prices forward by the highest rate of growth seen for 18 years, with prices 26.6% higher compared to November last year.
The impact of demand from the City has meant that the traditional end of year slowdown is increasingly becoming a thing of the past in London. The normal sales pattern for the UK has always been that we have two market upturns – one in Spring and the second in Autumn, together with two market downturns, Summer and Winter.
London has always been a little different – with demand from new workers starting jobs in Autumn meaning the summer market can remain fairly strong. What happened last Christmas however was a total breakdown of the normal Winter slowdown. As well as tracking price growth we also track demand indicators for property in central London – comprising new buyer registrations and viewing volumes. The results of our analysis (provided below) shows that last December saw the beginning of an upwards shift in demand which never really slowed through 2006.
The uptick in demand coincided with the beginning of last year’s bonus season. If anything we are moving into this year’s bonus season with demand at a level even higher than the level we saw last year. Viewings were 40% higher and applicant registrations were 27% higher in November this year compared to November 2005.
Bonus analysis
This time last year, speculation regarding record breaking bonus payouts began to emerge after very strong performance in the City. It is estimated that last year’s bonus pool was in the region of £7 billion, representing an increase of 16% on the previous year’s figure.
A year on and early indications suggest that last year’s records will be broken and over £9 billion will be paid out in early 2007. A recent survey conducted by recruitment consultant Morgan McKinley stated that over 90% of the individuals working in investment banks and financial services institutions in the City of London are expecting their bonuses to be higher than last year.
American banks such as Lehman Brothers, Morgan Stanley and Goldman Sachs, are among the first to make their bonus announcements in mid December. They are usually followed by the Swiss banks, UBS and Credit Suisse and then the German and other European banks. Taking into consideration the time lag between bonus announcements and pay outs, bonus season lasts from December through to April, but now appears to impact the prime London market from October (as bonus levels are anticipated) until July (when most deals have been put to bed).
Our research reveals that the number of viewings tripled between the months of December 2005 and March 2006. When comparing this figure against the same period the previous year, where bonuses were lower, the number of viewings only increased by approximately 60%, five times lower than the figures of 2005/06. Though the difference in demand cannot be solely attributed to City workers with bonuses, it is clear that recent bonus surges have had an impact on the residential market.
Forecast for 2007
Should announcements live up to expectations, we anticipate price growth in prime central London to maintain its strength over the coming months. Our forecast for price growth in 2007 for prime central London is 12%, which compares to the c27% will we see in total during 2006.
Our forecast for price growth in the wider UK market during 2007 is 6%, again with London and the South of England leading the growth during the year.
