Savills Research | The Residential Property Focus May 2009
Prime markets
Opportunity knocks in prime markets
In the context of the current economic outlook, Lucian Cook believes
there is value to be found in prime central London property.
T
he prime markets, particularly central London, south west London and the prime markets (much more so than in the
those of central London, are often regions had fallen by 23.3%, 25.8% and mainstream), the extent of price falls has
seen as a barometer for the rest of 19.3% respectively since their peak. Such exceeded rental faults and yields have
the residential property market. falls appear to have been sufficient moved out.
With mortgage-dependent buyers thin on to stimulate demand among those taking
the ground, this is likely to continue to be a medium term view on house prices. Investment opportunities
the case over the coming year. We expect History tells us that gross yields in prime
equity-driven markets to be the first to central London generally correspond
respond to improved market sentiment. Prime central London’s closely with those of gilts. It is therefore
Additionally, prime central London’s
historic attraction to investors, particularly
historic attraction to investors
important to note that yields on
government bonds have fallen. Prime
those from overseas, means that close
means that close attention
central London residential real estate
attention is being paid to the early signs has generally been seen as a relatively
of increased buyer activity. Traditionally,
is currently being paid to
secure bricks and mortar investment, and
this has been an indication that prices are
the early signs of increased
this increases the relative attractiveness
bottoming out. We do not expect this cycle of prime central London property as an
to prove an exception. buyer activity. investment opportunity.
Investment funds are starting to be
Market regains a pulse attracted to this market, recognising
Following the significant price falls in the Rates of fall in the first quarter of 2009 were the historic medium to long term out-
fourth quarter of 2008, triggered in no half those seen in the closing months of performance of prime central London
small measure by the collapse of Lehman 2008, and buyers seem to be sensing that over other markets and asset classes.
Brothers, applicant activity within the prime the market is approaching its floor. Furthermore the fact that exchange rates
markets rose in January and February In March, transaction numbers in prime against the dollar was 12% below the
2009. This increase in applicant activity central London had recovered back to the 25-year average at the end of March,
both gathered pace and started to translate same level as a year earlier. In the country has increased the purchasing power of
into increased buying activity in March. they were only 10% lower. overseas investors and made London
Our prime indices indicate that, at the It has not gone unnoticed by investors residential real estate look like increasingly
end of March, prices of prime property in that, while rental values have fallen in the good value.
Graph 2.1 Graph 2.2
Prime market movements Gross yields vs Gilts
Prime Central London Prime SW London Prime Regional
Gross prime central London yields
Gilts
10%
12%
8%
6% 10%
4%
8%
2%
0%
6%
-2%
-4%
4%
-6%
2%
-8%
-10%
Q100 Q101 Q102 Q103 Q104 Q105 Q106 Q107 Q108 Q109
0%
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
Source: Savills Source: Savills
10 savills
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