Price growth stabilises across prime London following a dip at the end of 2022. But realistic pricing will be crucial to maintain momentum and activity this year
Jessica Tomlinson, Associate, Savills Residential Research
- Prime London price growth stabilises
- Confidence in domestic markets despite economic headwinds
- Realistic pricing determines activity levels
- Outlook
The prime markets of London have held steady so far in 2023, with average values remaining broadly flat (0.1%) during the first quarter. This compares to the fall of -1.2% experienced in the final three months of 2022 and leaves values at the same level they were a year ago. In central London, annual growth slipped into negative territory (-0.2%) for the first time since March 2021.
There has been some variation by price, with higher-value properties continuing to outperform as they tend to be less impacted by higher interest rates. But this difference in price growth did narrow over Q1, as some stability returned to the mortgage markets. The price of prime London properties worth below £1 million fell marginally by -0.2% in the three months to March, whereas those worth more than £2 million increased by 0.3%. And those at the very top end, over £10 million, increased by 0.2%.
Best-in-class properties also performed strongly. Despite the wider market becoming increasingly price sensitive, many of these properties continue to attract competition. This is further evidenced by our recent buyer and seller survey, which revealed that 22% of London respondents are looking to purchase an immaculate property, and a further 62% want one that only requires some minor refurbishment.
The strongest performers over Q1 were the prime housing markets of West and North and East London, with marginal growth of 0.5% and 0.3%, respectively. Across West London, price growth has been supported by the flats market, where activity returned following sizeable falls over the final quarter of last year.
In North and East London, the strongest growth was experienced across Canary Wharf (2.2%), Clerkenwell (1.8%) and Shoreditch (1.2%), all popular with City workers. Demand in these areas comes from domestic cash buyers and investors, and an uptick following weaker growth in Q4 2022 suggests confidence has returned despite recent uncertainty in the capital’s financial sector.
Elsewhere, Westminster (0.6%) and Pimlico (0.5%) outperformed the wider prime central London market, driven, in part, by increased demand for pied-à-terres. This further indicates commitment to London as a safe haven for property investment.
While prices across prime London have held steady over the start of this year, the gap between buyer and seller expectations on price looks to have widened. More than half (53%) of Savills London agents reported that buyers expected to pay at least 5% less for their new home during the first quarter. Compared to just 13% who think sellers are prepared to lower their price expectations by the same amount. This is further supported by the number of price changes for properties worth more than £1 million across London, which were 28% higher over Q1 than they were in the first nine months of 2022, on a seasonally adjusted basis, according to data provider TwentyCi.
As a result, realistic pricing continues to determine activity levels and will be key to maintaining momentum moving forward, particularly as supply and demand dynamics begin to shift. Almost a third (31%) of Savills agents reported that a lack of stock was the biggest issue facing the market during Q1, higher than the 7% who thought so in the final quarter of 2022.
Indeed, new instructions of £1 million+ properties in London during Q1 were -1.4% down on the number seen during the first nine months of last year, on a seasonally adjusted basis, according to TwentyCi. In Q4, they were 9% above this level. But, as some sellers have decided to hold out for the traditionally busier spring market, two thirds of agents think stock will improve over the coming three months.
While demand across the capital has remained stronger than expected, buyers are not feeling the same urgency that they felt last year. Newly agreed sales during the first quarter of 2023, taking into account seasonality and fall through rates, were 88% of the levels seen during the first nine months of 2022. An increase from the 75% over the final three months of last year.
Over the rest of this year, the prime London markets will be less affected by affordability constraints that will impact the wider housing markets.
Across prime central London, which is typically driven by global wealth generation and equity rather than debt, there has been a recent uptick in cash buyers, as mortgage rates have increased. The proportion of those buying with cash increased from 66% between January 2021 and August 2022 to 74% in the six months post-mini budget.
But, given a change in sentiment, central London will not be immune to wider economic and market pressures. As such, we are forecasting values to fall by -2.0% by the end of 2023. We also expect central London to be the strongest performing region over the next five years, with total growth of 13.5%. This will be underpinned by the value on offer and a lack of supply compounded by fewer new build alternatives.
Across outer prime London, higher costs of debt will undoubtedly have a more significant impact, as evidenced by the performance over the past six months. As such, we are forecasting that prime prices will fall by an average of -7.0% by the end of 2023. Longer term, as the Bank base rate gradually falls and mortgage costs continue to improve, we expect values across outer prime London to rise by an average of 6.1% over the five-year period to 2027.
<View our latest Q1 2023 updates here.
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The article you've shared delves into the dynamics of prime London's real estate market, emphasizing the stabilization of price growth, the influence of realistic pricing on market activity, regional market performance, and an outlook for the future.
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Prime London Price Stabilization: The data indicates a stable trend in 2023 after a decline at the end of 2022. This stability is highlighted by a marginal change in average property values during Q1 2023 compared to the previous quarter, leaving values consistent with those of a year ago. There's a distinction in price performance based on property value brackets, with higher-value properties showing more resilience amid interest rate fluctuations.
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Confidence in Domestic Markets: The article cites specific areas like West, North, and East London experiencing marginal growth, driven by factors such as revived activity in the flats market and increased demand in regions popular among City workers. Despite uncertainties in London's financial sector, confidence seems to have returned, evidenced by the resurgence in certain markets.
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Realistic Pricing Impact: A widening gap exists between buyer and seller price expectations. Buyers seem inclined toward lower pricing by at least 5%, while sellers are less likely to adjust their expectations to the same extent. The importance of realistic pricing is emphasized as a determining factor for market activity, particularly in light of changing supply and demand dynamics.
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Outlook: Forecasts for both central and outer prime London regions suggest different trajectories. Central London is projected to experience a decline in values by the end of 2023 but expected to be the strongest performer over the next five years due to perceived value and limited supply. Meanwhile, outer prime London may face greater challenges due to higher debt costs, potentially leading to a larger decline in prices by the end of 2023, but showing an upward trend over the longer term.
The article overall underscores the delicate balance between pricing, supply, and demand in shaping the trajectory of London's prime real estate market, offering insights into regional variations and future projections influenced by economic factors.
