PETALING JAYA (Feb 17): Prime Central London’s (PCL) average rents fell 13% in the year to January as supply level remained high during the third United Kingdom national lockdown, according to Knight Frank in its Prime London Sales & Letting Review released today. 

The consultancy highlighted that a high number of properties switching from the short-let market has contributed to the increased supply, which has been a trend since the pandemic. This has led to higher tenancy agreements being signed.

“The number of tenancies started in January was 19% ahead of the five-year average in London, underlining how activity levels remain strong despite falling rates. In many cases, tenants are taking advantage of falling rents to relocate to new parts of the capital. It was a trend we analysed taking place in Canary Wharf,” said associate director of international residential project marketing at Knight Frank Malaysia Dominic Heaton-Watson.

David Mumby, head of Prime Central London lettings at Knight FrankPrime London, said: Rents have undergone a fundamental reset. Rents are falling and I think the trend will continue until the airports reopen and we see the return of international travel. We are not being inundated with new stock at the same rate as last year, but supply levels are still high.”

Meanwhile, the annual price decline in PCL stayed at 4.3% for the third consecutive month in January, with the consultancy linking this holding pattern to the international travel restrictions. However, transaction activity has been positive thanks to domestic demand.

“While prices are broadly flat, the number of transactions in PCL was 12% higher in January than the same month last year, highlighting how the release of pent-up demand after the market reopened last May is translating to exchanges,” said Heaton-Watson.

The consultancy noted that the impact of international travel restrictions can be seen when comparing price changes in PCL and the wider London market. 

“The spread between the annual price growth in Greater London (9.6%) and PCL (-4.3%) in November was 13.9 percentage points, underlining the extent to which domestic demand has sprung back in the capital, accelerated by a stamp duty holiday,” said Heaton-Watson. 

This relatively weaker performance in PCL comes before an April 2021 2% stamp duty surcharge for overseas buyers, limiting downward pressure on prices.

“The absence of international travellers means we are in the unique situation of having a stamp duty surcharge that is largely baked into the price before it is introduced,” said Tom Bill, head of UK residential research at Knight Frank.

Looking back at last year’s transaction activity, Heaton-Watson noted that domestic demand played a big part in the transaction numbers. “The £5 million to £10 million price bracket in PCL experienced the biggest jump in the number of sales, rising 16.1% from 2019, the largest such increase since 2013,” he said, with the review adding that the focus was on houses and owner-occupiers, who were active during the pandemic.