The outlook for the London property investment market

london property investment market

London Property Investment

For many years London has been viewed as a haven for domestic property investment. With capital value and rental growth consistently outperforming elsewhere in the UK it has attracted continual investment from both home investors and those overseas. Now a new report from Savills research suggests that prime market price growth may be on hold, at least for now.

Recent figures from the firm show that the London market enjoyed growth of 0.9 per cent in the second quarter of 2012. However, annual price growth for the year stood at six per cent – the lowest level since September since 2009. This would suggest that heat in the market has dwindled somewhat, but the group insists London is still a solid choice for investment prospects.

It is now three years since the markets bottomed out and we’ve seen a period of intense activity and price growth, but it now seems unlikely that the market will have the capacity for further price growth in the short term,” said Lucian Cook, director of Savills research.

Mr Cook explained that many factors had contributed to this slowing of growth, including the current instability in the eurozone and the changes in stamp duty implemented on properties sold for £2 million and above. That said, the core central markets and prestigious postcode areas continue to hold their appeal, particularly to international investors. Chelsea, Mayfair, Belgravia and Knightsbridge all enjoyed growth of 1.2 per cent or above in the second quarter and averaged an annual growth level of 8.9 per cent and are now an impressive 24.2 per cent above peak.

At the top end of the market, ultra-prime properties – those priced at £10 million and over – saw marginal growth of 0.2 per cent in the quarter. Though this at first appears to be a low level rise, it comes alongside an annual growth of 8.6 per cent year-on-year, outperforming the rest of the market.

The continued interest from overseas investors in market has begun to make an impact on the rental market, according to the group. Figures show that annual growth in the annual prime London rental market has slipped into negative territory for the first time in two years due to a 0.4 per cent decline year on year. The firm in part attributes this drop to the rising stock levels within prime London brought about by overseas investors bringing their rental property to market. A shift in the overall renting demographic in London is also said to have played its part, with fewer tenants from the financial and business services sector coupled with an increase in rental demand from young professionals.

Mr Cook explained: “The profile of tenants has changed as a direct consequence of weakened sentiment, with a notable decrease in big ticket tenants employed in the financial sector in the prime central and east of City markets of Canary Wharf and Wapping. As such, there are a number of new and increasingly localised market forces being seen in the capital.”

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