May 2019

Is the squeezed middle starting to move?

London’s property market has, during the recent slowdown, been divided into three. At the bottom of the market are the one- and two-bed apartments and small houses – the first rung on the property ladder. Here, activity has remained relatively consistent, driven by necessity as properties are outgrown when their owners co-habit or have children.

At the top of the market, activity is returning to the super-prime segment. The ultra-rich are price sensitive and, unsurprisingly, averse to buying into steeply falling markets. However, as the post-2014 price falls subside, these buyers, whose wealth is less sensitive at the margins than mere high-net-worths, are re-entering the market – and often snapping up bargains.

It is the middle of the market, however, where activity has really slowed to a crawl and has yet to recover. These are the owners of three- to four-bedroom houses who, in the past, would have been tended to upsize as their families grew and as their careers (and incomes) progressed. However, without facing any pressing need to move, they have stayed put, deterred by Stamp Duty rises, sliding prices and Brexit uncertainty.

Those Stamp Duty rises – and the slowing of activity to which they have contributed – are showing through in the government tax take. For the first three months of 2019, Stamp Duty receipts fell 10% – or £1 billion – on the same period in 2018.

“What London needs is for this middle part of the market to unlock,” says Caspar Harvard-Walls, Partner at Black Brick. “And there are signs that this is starting to happen.”

According to the latest data from agency Knight Frank, the number of new prospective buyers registering in prime central and prime outer London increased by 11.3% in the year to March 2019, compared to the previous 12-month period. The number of offers made rose by 14.3% over the same period.

“There are people who have been sitting on their hands for three or four years, and we are certainly hearing anecdotal evidence of people saying, ‘it’s time to move’,” says Camilla Dell, Managing Partner at Black Brick. “Price drops we’ve seen in parts of London have more than absorbed the additional Stamp Duty that homeowners face, and some buyers are deciding that it’s time to trade up.”

Given the continuing buyer’s market, purchasers are able to secure hefty discounts on asking prices – LonRes data shows buyers achieving an average 13% off the asking price, although, of course, buyers trading up will have to absorb discounts on the property they are selling. However, falling prices have made the gaps between the rungs on the property ladder smaller, making moving up attractive.

However, Knight Frank warns that continuing tight supply is creating a growing mismatch between supply and demand. The ratio of new buyers to new listings across prime London rose to 9:1 in March, the highest figure the estate agency has recorded.

“Given this level of pent-up demand we would expect a material rise in trading volumes should the current political deadlock be broken,” it argues, and “an initial period when demand outstrips supply, which may also provide upwards pressure on pricing.”

But this pent-up demand is being held back by excessive rates of Stamp Duty on more expensive properties, argues Dell. “The evidence shows that the Stamp Duty rises have been counterproductive, pouring glue into an already fragile market and reducing government revenues as a result. There is a strong case to be made for government to revisit Stamp Duty rates with a view to getting the middle of the market moving again,” she says.

In addition, the government should think twice about imposing an additional 1% Stamp Duty surcharge on overseas buyers – a proposal that is currently out for consultation. “Foreign buyers are vital to London’s property market, and penalising them would send a dreadful signal, as Britain prepares to leave the EU, about our openness to overseas investment,” Dell adds.  

Super-prime developments turn up the exclusivity

A drawback for buyers of some of London’s most exclusive new developments has been the need to share some of the amenities, such as a pool, spa or gym. However, there are signs that this is changing, with some super-prime developments on the drawing board offering exclusive amenities to the uber-wealthy.

For example, in Chelsea, the redevelopment of a former school – tipped to become the most exclusive and expensive apartments in this part of London, once they go on the market later this year – offer private pools, spas, gyms and parking areas to some of the apartments, giving residents complete privacy. Owners will be able to take a swim, use the gym, and park their cars without ever having to see another resident.

Audley Square House, under development in Mayfair by phone entrepreneur John Caudwell, is to contain 24 luxury apartments, with construction due to begin at the end of 2019. Each apartment will have its own private amenities, including pool, necessitating the excavation of five levels below ground.

“In the past, we’ve seen super-prime developments, charging buyers £4000-5,000 per square foot, but requiring their residents to use communal facilities,” says Dell. “That’s not afforded ultra-high-net-worths the privacy they expect, leading many of them to favour houses rather than apartments.

“Some of the new/yet to be launched or even built developments have recognised this, and are responding. It will be interesting to see what premium buyers will be willing to pay in order to benefit from this new level of luxury, but I wouldn’t be surprised to see prices creeping up towards £10,000 per sq. foot for the best-in-class apartments within these new super prime developments,” she adds.

This is an emerging trend that Dell expects to be increasingly adopted by developers in other global cities. “New schemes such as the former school in Chelsea and Audley Square House are really going to the next level,” she says. “In luxury new-build, where London leads, cities such as New York follow.” 

Calling London’s next prime hotspots

In a marketplace as diverse as London, there is a constant ebb and flow of buyer interest in various parts of the capital, in response to developer investment, infrastructure improvements – or simply to changing fashions. With this in mind, we think buyers would be well advised to take a look at two areas they may have overlooked in the past: Bermondsey and Fitzrovia.

On the southern side of the Thames, stretching east from London Bridge, Bermondsey was recently named London’s best place to live by the Sunday Times, “reflecting the rise of an area that epitomises the modern urban good life”. A foodie mecca, it combines culture, craft beer and even indoor climbing, with excellent transport links and a relatively central location.

Its converted warehouses – a legacy of the area’s role in London’s river trade – jostle with newer developments to offer an enormous diversity of different types of property. While buyers can find loft apartments for seven-figure sums, it’s also still possible to buy a one- or two-bed ex-local authority property for £350,000 – a rarity in central London.

At the top end of the market, 1 Tower Bridge offers a range of one- to four-bed apartments that sold for between £500,000 and £5 million. Meanwhile, Thorburn Square SE1 offers buyers the chance to buy a 750 sq. foot two-bedroom apartment overlooking a garden square for £400,000. Tom Kain, buying consultant at Black Brick comments: “For investors looking at buying in London, but without the budget for super prime/prime areas, Bermondsey and the SE1 area in general presents an opportunity to buy into a very centrally located area with excellent transport links.”

North of the river, Fitzrovia – bounded by Oxford Street to the south, Tottenham Court Road to the east, and Great Portland Street and Euston Road to the west and north – has been similarly overlooked. Historically somewhat drab and dominated by office buildings and the estate of University College Hospital, it is undergoing a wave of development and modernisation that promises, if not outright transformation, certainly a significant polishing up.

The Crossrail redevelopment of Tottenham Court Road station is heralding a smartening up of the east end of Oxford Street and of unlovely Tottenham Court Road itself. And developers have been moving in to take advantage.

One of the first developments to launch very successfully several years ago, the 235-unit Fitzroy Place includes a redevelopment of the old Middlesex Hospital, while there are still two penthouses for sale in the mixed-use Rathbone Square development – which Facebook has chosen for its UK headquarters.

Property is available in the area for a substantial discount to the cost of its newly-fashionable neighbour Marylebone, at around £2,000/square foot for high quality new-builds, compared with £3,000-plus in Marylebone. Managing Partner Camilla Dell comments “There are a raft of other smaller more boutique new build developments and re-developments of previously commercial buildings popping up in Fitzrovia, combined with significant investment into commercial buildings and infrastructure we predict the area should outperform other parts of central London over the next few years”.

Acquisition of the month 1: Pont Street, Knightsbridge, SW1 – £4,300,000

Our Hong Kong-based client was looking for a very particular property, in a period building with a lift, with ceiling heights of at least three metres, but with no-one above the bedrooms. Apartments in the area generally have lower ceiling heights as you go up in the building, so there are very few flats on the top floors where such specifications can be found.

After an exhaustive search, we found a stunning 2,050 sq ft duplex penthouse apartment with high ceilings and far-reaching views across Knightsbridge. The apartment has been purchased shell and core, providing a blank canvas for our client to create a new unique space to their own taste. We negotiated £200,000 from the asking price, with the final purchase price equating to a rate of £2,097 per sq ft – considerably below the £3,346/sq ft that similar flats on the street have achieved in the last 12 months.

Acquisition of the month 2: Montagu Square, Marylebone, W1H – £2,300,000

Our Far Eastern client was looking to purchase an investment property in prime Central London in order to diversify their overall investment portfolio, taking advantage of a weaker London property market and a favourable exchange rate. With limited knowledge of where and what to buy, and current market values, we looked at a range of properties across prime London, educating our clients in the process.

We successfully agreed the purchase of this immaculate three-bedroom apartment overlooking one of the finest garden squares in Marylebone. The 1,200 sq ft apartment, which spans two buildings, has six windows directly overlooking the gardens. Our relationship with the selling agent meant we were first through the door to view the property and submitted an offer within the first week of the property coming to market. We were able to negotiate a £200,000 discount from the asking price, equating to under £2,000/sq ft in an area where the best properties are now selling in excess of £3,000/sq. ft. Our clients have also taken advantage of our Property Management Service to ensure the property is seamlessly let-out on completion.

Managed sale case study: Garrett Street, Clerkenwell, EC1 – £5,000,000

Our high-profile client was looking for a discreet sale for this extremely unusual live-work warehouse conversion near Old Street, and favoured Black Brick over the more conventional estate agency approach. Given the nature of the property, and its likely appeal, we carried out a carefully targeted campaign, tapping into our network and finding three very interested prospective buyers.

Within a just a few weeks, competition between prospective buyers resulted in an offer at the asking price, bucking the current sluggish market. Once the sale was agreed, contracts were exchanged within one week – with the whole process taking less than a month. 

If you are considering a sale and would like to find out more about our Managed Sale Service, please contact Caspar Harvard-Walls on chw@black-brick.com or call +44(0)203 141 9860.