1

Chestertons London Residential Property Market Report

Summer 2020

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Chestertons London Residential Property Market Report – Summer 2020

Supply and demand

Sales market: Key trends – Strong bounce back in the number of buyers entering the market since mid-May – Shortage of properties on the market for sale has limited the number of people

ableꢀto move – Prices are recovering in many locations after falling during lockdown – Sales of new homes fell by over one third between April and June

The strong increase in the number of buyers entering the market following the General Election result was brought to an abrupt halt towards the end of March as a result of the Covid-19 related social distancing guidelines and restrictions on business activities and movement.

The number of online enquiries Chestertons received for properties in the three months between April and June was 20% lower than theꢀprevious three months (between January and March) while the number of new buyers registering was down by 29%. The number of sales in London’s higher value locations also fellꢀby 54%1, compared to April-June last year.

However, the re-opening of the housing marketꢀon 13th May triggered a surprisingly strong surge in activity from buyers, which has gathered momentum ever since. Between 13th May and 30th June online enquiries rose by 174% in the locations covered by Chestertons, while the number of new buyers registering increased by 170% and the number of offers made on properties was 200% higher compared to the first seven weeks of lockdown. Between the start of lockdown and mid-July, Chestertons also sold more properties in the higher value locations in London than any other agent.

0%

100%

200%

300%

400%

500%

600%

Availableproperties

Pricereductions

ExchangesO ersViewingsNewlyregistered

buyers

Propertywebsite

enquiries

170%

346%

488%

15%

200%

93%174%

Source: Chestertons Research

Key sales indicators: re-opening of housing market in mid-May until end-June v first seven weeks of lockdown

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The speed and strength with which buyers haveꢀreturned to the property market and the shortage of properties available to buy has largely prevented prices from falling too much. In the locations covered by Chestertons, much of the price fall seen in the first seven weeks of lockdown has been recovered since the market re-opened in May. Some properties are attracting multiple offers and a few have soldꢀfor above the asking price.

– Across Greater London as a whole, Nationwide’s House Price Index reported that average prices rose by 2.1% between

April and June compared to the same periodꢀin 2019, while Zoopla reported aꢀ1.6%ꢀincrease in the year to June.

– At the end of June, the Chestertons Index reported that average prices for properties inꢀLondon’s higher value locations were 1.6%ꢀlower than at the end of March, but were 1.6% higher than in June 2019.

– Prices fell more sharply in Central London atꢀ3.4% over the three months to June andꢀwere down by 2.2% compared to Juneꢀlast year.

The re-opening of the market prompted homeowners to re-assess their housing requirements during lockdown and many realised their current homes no longer offered them what they wanted. This triggered an increase in demand for properties, especially those offering outdoor space and which offeredꢀa dedicated room for homeworking.

The re-opening of the market also encouraged more homeowners to put their properties on the market and the number of properties

available to buy increased by 15% between mid-May and the end of June. Nonetheless, atꢀthe end of June there were nearly four timesꢀmore buyers than properties available toꢀpurchase.

The number of properties sold nearly doubled between mid-May and the end of June and would have been even higher but for a shortage of available properties and the reluctance of many sellers to reduce their asking price.

Prices

-4%

-3%

-2%

-1%

0%

1%

2%

Quarterly prime London price growth

Source: Chestertons Research

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Inner London Outer London

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Source: Molior

London’s Quarterly New Homes Sales

**Source: Molior: data reflects schemes of 20 or more units

Sales of new homes between April and June were 35% lower than in the first three months ofꢀthe year and were 13.5% down on the corresponding period in 2019, although agentsꢀreported an increase in sales in June. Atꢀthe end of June, 46% of homes under construction across London were unsold, equating to just over 28,000 properties which isꢀthe lowest it has been since the end of Juneꢀ2017. A further 3,783 properties were completed and unsold, a figure which has reduced over the past nine months.

Housebuilders have responded to the current conditions by reducing their activities and the number of construction starts between April andꢀJune was 30% lower than in the first three months of the year, while the number of homes built was 50% lower. Since March, housebuilders have increasingly had to offer discounts in orderꢀto sell properties which encouraged some opportunistic investors, many from overseas who additionally benefitted from the weak pound.

New homes market

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The pickup in buyer demand since mid-May hasꢀbeen surprising and whether this can be sustained will largely depend on how quickly theꢀeconomy recovers. Although the economy shrank by 19.1% between March and May, it grew by 1.8% in May and the latest forecast from the Treasury’s panel of independent forecasters’ shows growth bouncing back to 6.3% next year, assuming lockdown measures continue to be relaxed.

The considerable pent-up demand from domestic buyers, supported by the new stamp duty holiday and low mortgage interest rates, will be augmented by the return of overseas buyers who have been largely absent since early lockdown but who are beginning to return now that the quarantine restrictions are being lifted. We may also see an increase in the number ofꢀHong Kong residents looking to settle permanently in the UK if China pursues its crackdown on civil liberties in the territory.

We think that prices across Greater London as aꢀwhole will fall by 1%-3% this year, although the ability to bounce back will be helped by theꢀcity’s diverse economy, including the IT and financial services sectors which have been more resilient during lockdown, notwithstanding any Brexit fallout. Prices could flatten and even seeꢀa return to moderate growth next year, assuming the economy is recovering, although the number of sales is likely to remain low by historic standards.

In the locations covered by Chestertons, we forecast that prices will fall by 1%-2% this year although there could be slight growth in those areas where demand continues to outpace supply. We expect prices to return to more widespread growth in 2021, averaging 3%-5%, supported by the increasing return of foreign buyers and investors looking to take advantage of prices that are lower than for many years.

2019 2020 2021 2022 2023 2024

London 1.1% -2.0% 2.0% 2.0% 2.0% 3.0%

Prime London 1.8% -1.5% 4.0% 3.0% 3.0% 3.0%

London residential price growth forecasts

Source: Chestertons Research

Outlook

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950-2.7%

TowerBridge

Hampstead7110.0%

Kentish Town825

-0.3%

1,2091.6%

Covent Garden

Mayfair

Knightsbridge& Belgravia

Camden

Kensington

Little Venice

Fulham

Putney

ChelseaChiswick7780.6%

7391.0%

Wandsworth7311.5%

7480.2% East Sheen

750-3.0% Richmond

8681.6%

1,1480.3%

819-2.0%

To Canary Wharf

7870.0% Kew

BatterseaPark

9831.3%

929-0.1% Barnes

1,1940.0%

St John’s Wood

Battersea7890.0%

Islington956

-2.3%

Westminster& Pimlico

HydePark

1,203-2.6% 1,937

-0.6%

2,019-6.5%

1,510-6.5%1,636

-5.5%

1,1170.0%

Notting Hill1,2240.0%

1,579-3.4%

South Kensington

Canary Wharf& Docklands

664-3.2%

Prime* residential capital values (£/sq ft) & 3-month growth as at end-Jun 2020

Source: Chestertons Research

The Chestertons Prime London Residential Sales Index track quarterly changes in capital values in 27 locations across London. They are fixed-base indices using the quarterly repeat valuation of a standard basket of properties (selected so as to be representative of a typical cross-section of prime stock within each location) in order to remove inconsistencies that can arise from using a transaction-based approach where the number and type of properties may vary significantly between reporting periods. We have not applied any adjustment for seasonality or property mix. The geographical coverage of ourꢀindices is as follows: Barnes, Battersea Park, Battersea & Clapham, Camden, Canary Wharf, Chelsea & South Kensington, Chiswick, Covent Garden, East Sheen, Fulham, Greenwich & Blackheath, Hampstead, Hyde Park, Islington, Kensington, Kentish Town, Kew, Knightsbridge & Belgravia, Little Venice, Mayfair, Notting Hill, Putney, Richmond, St John’s Wood, Wandsworth, Westminster & Pimlico and Tower Bridge.

*Higher value locations**Source: Lonres database of sales transactions in London

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Supply and demand

Lettings market: Key trends – Tenant demand fell in early lockdown but has picked up since mid-May

– The supply of rental properties has risen dramatically since April

– Rents are recovering in some locations after falling heavily in the first two months of lockdown

– Investment yields have fallen marginally

The impact of the Covid-19 virus has arguably been more pronounced on the lettings market. Government restrictions on moving home introduced on 23rd March forced many tenants to put plans to move onꢀhold and concern about their employment situation had a similar effect following the re-opening of the market. In addition, the ability of some tenants to continue paying their rent was affected by enforced pay cuts, furlough andꢀredundancy. The number of tenants moving in Central London fell by around 52%2 between April andꢀJune compared to the previous three month period.

The fall in demand reflects a combination of tenants staying where they are due to future jobꢀuncertainty or moving back home or sharing with friends. In addition, the lucrative overseas student market dried up as students were not certain if they would be able to study in September, although a number of the larger London universities have now confirmed they will offer both remote and face-to-face courses from the start of the new term and demand from students has begun to increase. Corporate relocations were also much lower than usual as companies exercised tighter cost control and foreign executives delayed decisions to move toꢀthe UK.

The supply of available rental properties rose sharply during the three months to June as landlords struggled to attract and retain tenants. At the beginning of July the number of properties available to rent was 53%3 up on the same point last year and average void periods across Greater London rose from 14 days in March to 23 days

in June4. The volume of empty properties began to reduce at the end of June as tenants were attracted by the reduced rents which landlords were offering. Nonetheless, in the locations covered by Chestertons the number of properties available to rent at the end of June was still nearly 70% higher than at the same point in 2019.

-50%

0%

50%

100%

150%

200%

250%

Availableproperties

(end period)

Agreedtenancies

Rentreductions

OꢀersViewingsWebsiteenquiries

38%15%

70%

195%

-19%

49%

Source: Chestertons’ Research

Key market indicators: Apr-Jun 2020 v Apr-Jun 2019

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Rents and yieldsWeaker tenant demand combined with the increase in availability had a significant impact on rents as tenants had more choice and were in a stronger negotiating position with landlords. Many landlords, anxious to reduce the risk of voids and secure a tenant, lowered their rents and across Greater London average rents fell by 5.5% between April and June5, while in more central London locations this figure was between 10-15%. 39% of properties let in June had been discounted, up from 30% in May and 23% at the start of 20206. Average discounts increased too, with tenants negotiating an

average of 7.1% off initial asking rents in June, up from 4.5% at the same point a year ago7. Many existing tenants were also able to successfully negotiate rents downwards when renewing their contracts.

Chestertons’ Rent Index showed rents fell by 4.8% between April and June and at the end of June were 6.8% lower than at the same point last year. Rents have fallen in all areas ofꢀLondon covered by Chestertons although in the south west the drop has been much less at 0.5% due to an overall shortage of rental accommodation.

The fall in rents meant that yields also fell. Inꢀthe locations covered by Chestertons, grossꢀyields stood at 3.0% in June compared

toꢀ3.3% in June 2019. In Central London, yields dropped to 2.7% from 2.9% in June last year.

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

Prime* London quarterly rental value growth

Source: Chestertons Research* Higher value locations

9

OutlookThe turnaround in the lettings market since lockdown has seen a large number of both landlords and tenants come under considerable pressure and the outlook is again heavily dependent upon what happens in the wider economy.

The impact of lockdown, on top of the rising tax and regulatory burden over recent years is likely to persuade more, smaller landlords to sell their rental properties. However, with sales prices lower than they have been for some time and borrowing costs remaining low, we may see more professional landlords looking to expand their portfolios in 2020. The £15,000 stamp duty saving will be anꢀadded incentive to buy.

If the economy continues to recover as anticipated, tenant demand will increase, which will reduce the current surplus of properties available to rent. Nonetheless we forecast average rents across Greater London will fall

by 8%-10% in 2020 and by 3%-5% in 2021, although in those locations where supply and demand becomes balanced more quickly we could see a return toꢀmoderate growth next year.

Although the supply of rental properties is greater in London’s higher value locations, weꢀbelieve that there is potential for rents toꢀrecover more quickly if corporate demand picks up and foreign students are confident to return to the UK. Brexit may have some negative impact but indications so far suggestꢀthe exodus of staff will be far lessꢀthanꢀoriginally feared.

For 2020 as a whole, we forecast rents in the higher value locations will fall by 10%-12%, and by 2%-4% in 2021. The market is changing rapidly, however, and as in the wider market, locations which see a quicker return to a balance between supply and demand could even see rents rise again before the end of this year.

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5%

Knightsbridge & BelgraviaSouth Kensington

MayfairHyde Park

Prime Central London averageKensington

ChiswickBarnes

Little VeniceChelsea

Battersea ParkPutney

IslingtonPrime London average

Tower BridgeKew

St John's WoodNotting Hill

Westminster & PimlicoEast Sheen

HampsteadFulham

Kentish TownBattersea Rise

CamdenCanary Wharf

RichmondWandsworth

Covent Garden

Source: Chestertons Research

Prime London gross rental yields (end-June 2020)

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2019 2020 2021 2022 2023 2024

London 2.5% -9.0% -4.0% 2.0% 2.0% 3.0%

Prime London* 3.0% -11.0% -3.0% 2.5% 3.0% 3.0%

London residential rent forecast

Source: Chestertons Research*Higher value locations

Notes and sources:1, 2 & 3 Source: Lonres4 Source: Goodlord5, Source: Homelet 6 & 7 Source: LonresAll new homes data is sourced from Molior

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TowerBridge

HampsteadKentish Town

Covent Garden

Mayfair

Knightsbridge& Belgravia

Camden

Kensington

Little Venice

Fulham

Putney

ChelseaChiswick

Wandsworth

East Sheen

Richmond

To Canary Wharf

Kew Barnes

St John’s Wood

Battersea

BatterseaPark

Islington

Westminster& Pimlico

HydeParkNotting Hill

591-10.5%

684-5.3% 637

-2.9%

1,070-3.0%

5931.5%

583-2.1%

478-1.5%

7292.9%

8010.7%

773-6.9%

1,005-4.0%

7060.0%

723-6.9% 637

0.0%

8730.0%

691-0.4%

5816.9%

610-20.0%

919-3.4% 1,516-14.0%

1,2360.0%

9731.2%

618-9.6%

686-9.5%

1,3110.0%

848-18.2%

South Kensington

Canary Wharf& Docklands

517-6.4%

Greenwich &Blackheath 415

-5.8%

Prime* London residential weekly rents & 3-month growth as at end-Jun 2020

The Chestertons Prime London Residential Lettings Index track quarterly changes in rental values in 28 locations across London. They are fixed-base indices and are based on the quarterly repeat valuation of a standard basket of resale properties (selected so as to be representative of theꢀtypical cross-section of prime stock within each location) in order to remove inconsistencies which can arise from using a transaction based approach where the number and type of properties may vary significantly between reporting periods. We have not applied any adjustment for seasonality or property mix. The geographical coverage of our indices is as follows: Barnes, Battersea, Camden, Canary Wharf, Chelsea, Chiswick, Clapham, Covent Garden, East Sheen, Fulham, Greenwich, Hampstead, Hyde Park, Islington, Kensington, Kentish Town, Kew, Knightsbridge & Belgravia, Little Venice, Mayfair, Notting Hill, Putney, Richmond, St. John's Wood, South Kensington, Tower Bridge, Wandsworth and Westminster & Pimlico.

Source: Chestertons Research*Higher value locations

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The Chestertons Prime London Residential Sales & Lettings Indices track quarterly changes in capital and rental values in 28 locations across London. They are fixed-base indices and are based on the quarterly repeat valuation of a standard basket of resale properties (selected so as to be representative of the typical cross-section of prime stock within each location) in order to remove inconsistencies which can arise from using a transaction based approach where the number and type of properties may vary significantly between reporting periods. We have not applied any adjustment for seasonality or property mix. The geographical coverage of our indices is as follows:

Barnes, Battersea, Camden, Canary Wharf, Chelsea, Chiswick, Clapham, Covent Garden, East Sheen, Fulham, Hampstead, Hyde Park, Islington, Kensington, Kentish Town, Kew, Knightsbridge & Belgravia, Little Venice, Mayfair, Notting Hill, Putney, Richmond, St. John's Wood, South Kensington, Tower Bridge, Wandsworth and Westminster & Pimlico.

Local Offices:

Nicholas BarnesHead of ResearchT: 020 3040 8406E: nicholas.barnes@chestertons.com

Richard DaviesHead of LettingsT: 020 3040 8244E: richard.davies@chestertons.com

Guy GittinsManaging DirectorT: 020 7594 4745E: guy.gittins@chestertons.com

ContactChestertons is the London and international residential property specialist that knows its business and markets like no one else and every year helps thousands of people buy, sell, let, rent and manage their homes and investments. With more than 30 offices across the capital, Chestertons has one of the largestꢀnetworks in London, as well as a strong international presence around the globe.

BARNES Sales: 020 8748 8833 Lettings: 020 8748 7733 sales.barnes@chestertons.com lettings.barnes@chestertons.com

BATTERSEA Sales: 020 7924 4400 Lettings: 020 7298 5630 sales.battersearise@chestertons.com lettings.battersearise@chestertons.com

BATTERSEA PARK Sales: 020 3040 8700 Lettings: 020 3040 8269 sales.batterseapark@chestertons.com lettings.batterseapark@chestertons.com

CAMDEN Sales: 020 7267 2053 Lettings: 020 7267 3574 sales.camden@chestertons.com lettings.camden@chestertons.com

CANARY WHARF Sales: 020 7510 8300 Lettings: 020 7510 8310 sales.canarywharf@chestertons.com lettings.canarywharf@chestertons.com

CHELSEA Sales: 020 7594 4740 Lettings: 020 7594 4750 sales.chelsea@chestertons.com lettings.chelsea@chestertons.com

CHISWICK Sales: 020 8995 3443 Lettings: 020 8747 3133 sales.chiswick@chestertons.com lettings.chiswick@chestertons.com

COVENT GARDEN Sales: 020 3040 8300 Lettings: 020 3040 8400 sales.coventgarden@chestertons.com lettings.coventgarden@chestertons.com

EAST SHEEN Sales: 020 8104 0580 Lettings: 020 8104 0580 sales.sheen@chestertons.com lettings.sheen@chestertons.com

FULHAM, FULHAM ROAD Sales: 020 7384 9898 Lettings: 020 7384 9899 sales.fulham@chestertons.com lettings.fulham@chestertons.com

FULHAM, MUNSTER ROAD Sales: 020 7471 2020 sales.munsterroad@chestertons.com

HAMPSTEAD Sales: 020 7794 3311 Lettings: 020 7794 1125 sales.hampstead@chestertons.com lettings.hampstead@chestertons.com

HYDE PARK & MARYLEBONE Sales: 020 7298 5900 Lettings: 020 7298 5950 sales.hydepark@chestertons.com lettings.hydepark@chestertons.com

ISLINGTON Sales: 020 7359 9777 Lettings: 020 7226 4221 sales.islington@chestertons.com lettings.islington@chestertons.com

KENSINGTON Sales: 020 7937 7244 Lettings: 020 7937 7260 sales.kensington@chestertons.com lettings.kensington@chestertons.com

KENTISH TOWN Sales: 020 7267 1010 Lettings: 020 7267 1010 sales.kentishtown@chestertons.com lettings.kentishtown@chestertons.com

KEW Sales: 020 8104 0340 Lettings: 020 8104 0340 sales.kew@chestertons.com lettings.kew@chestertons.com

KNIGHTSBRIDGE Sales: 020 7235 8090 Lettings: 020 7235 3530 sales.knightsbridge@chestertons.com lettings.knightsbridge@chestertons.com

LITTLE VENICE Sales: 020 7286 4632 Lettings: 020 7266 2369 sales.littlevenice@chestertons.com lettings.littlevenice@chestertons.com

MAYFAIR Sales: 020 7629 4513 Lettings: 020 7288 8301 sales.mayfair@chestertons.com lettings.mayfair@chestertons.com

NOTTING HILL Sales: 020 3040 8585 Lettings: 020 3040 8588 sales.nottinghill@chestertons.com lettings.nottinghill@chestertons.com

NORTH BARNES Sales: 020 8748 8833 Lettings: 020 8748 7733 sales.barnes@chestertons.com lettings.barnes@chestertons.com

PARSONS GREEN Sales: 020 7731 4448 Lettings: 020 7348 7777 sales.parsonsgreen@chestertons.com lettings.parsonsgreen@chestertons.com

PUTNEY Sales: 020 8246 5959 Lettings: 020 8704 1000 sales.putney@chestertons.com lettings.putney@chestertons.com

RICHMOND Sales: 020 3758 3222 Lettings: 020 3758 3333 sales.richmond@chestertons.com lettings.richmond@chestertons.com

SOUTH KENSINGTON Sales: 020 7589 1234 Lettings: 020 7589 1244 sales.southkensington@chestertons.com lettings.southkensington@chestertons.com

ST JOHN’S WOOD Sales: 020 3040 8611 Lettings: 020 3040 8622 sales.stjohnswood@chestertons.com lettings.stjohnswood@chestertons.com

TOWER BRIDGE Sales: 020 7357 7999 Lettings: 020 7357 6911 sales.towerbridge@chestertons.com lettings.towerbridge@chestertons.com

WANDSWORTH Sales: 020 8104 7530 Lettings: 020 8104 7540 sales.wandsworth@chestertons.com lettings.wandsworth@chestertons.com

WESTMINSTER & PIMLICO Sales: 020 3040 8201 Lettings: 020 3040 8220 sales.pimlico@chestertons.com lettings.pimlico@chestertons.com

WEST PUTNEY Sales: 020 3040 8444 Lettings: 020 3040 8444 sales.westputney@chestertons.com lettings.westputney@chestertons.com

The contents of this report are intended for the purpose of general information and should not be relied upon as the basis for decision taking on the part of the reader. Although every effort has been made to ensure the accuracy of the information contained within this report at the time of writing, no liability is accepted by Chesterton Global for any loss or damage resulting from its use. Reproduction of this report in whole or in part is not permitted without the prior written approval of Chesterton Global. July 2020.

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Notting Hill

Chiswick

Barnes

Mayfair

Knightsbridge & Belgravia

Westminster & PimlicoChelsea

Kensington

Hyde Park & Marylebone

Little Venice

St. John’s Wood

Kentish Town Hampstead

Covent Garden

IslingtonCamden & Primrose Hill

Battersea & Clapham

Battersea Park

Putney Wandsworth

East Sheen

Kew

Tower Bridge Canary Wharf

FulhamParsons Green

Richmond

South Kensington