Nov

-13

Dec-

13

Jan-

14

Feb-

14

Mar

-14

Apr-1

4

May

-14

Jun-

14

Jul-1

4

Aug-

14

Sep-

14

Oct

-14

Nov

-14

-3

-2

-1

0

1

2

3

-3

-2

-1

0

1

2

3

Jan-

14

Feb-

14

Mar

-14

Apr-1

4

May

-14

Jun-

14

Jul-1

4

Aug-

14

Sep-

14

Oct

-14

Nov

-14

Q4 2013 Q1 2014 Q2 2014 Q3 2014

90

95

100

105

10

20

30

40

50

60

70

80

Rental values in prime central London were flat in November as a seasonal slowdown dampened activity in a market that has otherwise been in recovery mode.

Though the index recorded zero monthly growth, it has risen 3.3% since the start of 2014 as demand rose following a shallow two-year decline that took place against the backdrop of a flaccid economy and a surging sales market.

Rental value growth has been stimulated by the return to relative health of the UK economy however there is some degree of caution in relation to other parts of the world that may curb demand among corporate tenants.

In November, China cut interest rates for the first time in more than two years and speculation has grown that the European Central Bank is getting closer to full-blown quantitative easing, both of which are measures designed to boost their respective economies.

Next May’s general election is adding to a mood of uncertainty and, as figure two shows, there are mixed feelings about the near-term future.

On the positive side, the FTSE 100 has rebounded after a drop earlier in the year and a CBI/PWC survey of financial services companies for the third quarter of 2014 found a growing balance of companies that expect business activity to rise.

However, the survey also found that optimism among financial services companies has declined since the start of the year, which may also be the result of geopolitical instability as well as regulatory concerns in the banking industry.

A positive longer-term indicator is that the super-prime market, which covers rental values of £5,000 per week and above, is buoyant versus last year, indicating relocation budgets are growing for the most senior positions.

Rental values above £1,500 per week grew 0.2% in November, a rise cancelled out by a -0.2% decline for properties below £1,500 per week.

Rental yields rose to 2.92% in November, continuing a climb back towards 3%, a figure they last surpassed 18 months ago.

NOVEMBER 2014Rental values were flat in November though rents have risen 3.3% in 2014

Rents grew 0.2% for properties above £1,500 per week, while they fell -0.2% for properties below £1,500 per week

Future business activity of financial services companies is rising but optimism has cooled

Corporate demand has risen strongly, including at the super-prime level, but global economic risks remain

Rental yields rose to 2.92%, continuing a climb back towards 3%, a figure they last surpassed 18 months ago

TOM BILL Head of London Residential Research

“Rental value growth has been stimulated by the return to relative health of the UK economy however there is some degree of caution in relation to other parts of the world” Follow Tom at @TomBill_KF For the latest news, views and analysis on the world of prime property, visit Global Briefing or @kfglobalbrief

PRIME CENTRAL LONDON RENTAL VALUES FLAT DUE TO MIXED FORTUNES IN GLOBAL ECONOMYRental value growth slowed to zero in November as the year-end approaches and question marks remain over the global economy, as Tom Bill explains

RESIDENTIAL RESEARCH

PRIME CENTRALLONDON RENTAL INDEX

FIGURE 1 Annual rental value growth remains positive

FIGURE 2 An ‘up and down’ economic picture

Source: Knight Frank Residential Research Source: Knight Frank Residential Research

DOWN

UP

12 month % change monthly % change

CBI/PWC survey of financial services companies Optimism versus 3 months ago Volume of business in the next 3 months

FTSE 100 (Rebased to 100 at January 2014)

RESIDENTIAL RESEARCHTom Bill Head of London Residential Research +44 20 7861 1492 tom.bill@knightfrank.com

PRESS OFFICE Daisy Ziegler +44 20 7861 1031 daisy.ziegler@knightfrank.com

© Knight Frank LLP 2014 - This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank LLP for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank LLP in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank LLP to the form and content within which it appears. Knight Frank LLP is a limited liability partnership registered in England with registered number OC305934. Our registered office is 55 Baker Street, London, W1U 8AN, where you may look at a list of members’ names.

PRIME CENTRAL LONDON RENTAL INDEX

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Not only is the outcome of next May’s general election uncertain, it is unclear whether the era of two-party politics in the UK is coming to an end.

Against this backdrop of heightened political uncertainty, with opinion polls indicating that a majority government is the least likely outcome after the election, demand in the prime central London residential market has become more restrained.

Prices fell -0.2% in November, which was the first drop since October 2010 and meant annual growth eased to 6.1%. Discounting a minor dip in the second half of 2010 due to concerns over the euro zone, November marked the end of a run of growth that lasted five and a half years, during which time prices rose 73%.

It is difficult to rank individual reasons for the decline in order of importance, but anecdotally they appear to include the looming UK general election, the proposals for a mansion tax and the impact of capital gains tax reform for non-residents.

The conclusion must be that prices have softened in prime central London due to the magnitude of the cumulative uncertainty

rather than the quantifiable extent of the risks.

However, short-term or domestic risks don’t obscure London’s wider appeal. Whatever happens in 2015, for example, London will retain a competitive advantage versus New York, where residents are taxed on their global income.

Neither should buyers overlook the long-term potential for price performance of prime central London property which, as figure two shows, has been exceptionally strong through past elections.

Price declines in November included a -2.3% fall in Notting Hill, due to weaker demand in the £5 million to £10 million price bracket, a family house market that is more reliant on domestic demand than other areas of central London.

Elsewhere, prices in South Kensington fell 1.2%. Though more buyers are adopting a wait-and-see approach to pricing, the most in-demand and well-priced properties are selling quickly.

There were declines of less than 1% in Kensington, Islington and Marylebone, while prices were flat in the three golden postcodes of Belgravia, Knightsbridge and Mayfair.

NOVEMBER 2014Prices fell -0.2% in November, which resulted in annual growth easing to 6.1%

Prices have risen 73% in the five and a half years since the last low-point in March 2009

Notting Hill and South Kensington recorded monthly declines of 2.3% and 1.2% respectively

More buyers are adopting a wait-and-see approach on pricing but the best properties are still selling quickly

Prices were flat in Belgravia, Knightsbridge and Mayfair and declined by less than 1% in Kensington, Islington and Marylebone

TOM BILL Head of London Residential Research

“Prices have softened in prime central London due to the magnitude of the cumulative uncertainty rather than the quantifiable extent of the risks.” Follow Tom at @TomBill_KF

For the latest news, views and analysis on the world of prime property, visit Global Briefing or @kfglobalbrief

PRICES DIP IN PRIME CENTRAL LONDON AS BUYERS SEEK VALUEAs political uncertainty intensifies ahead of next May’s general election, demand has become more restrained and some buyers are betting on a pause in price growth, says Tom Bill

RESIDENTIAL RESEARCH

PRIME CENTRALLONDON SALES INDEX

FIGURE 1 Growth eases in prime central London

FIGURE 2 House prices on general election day The rising value of a prime central London

property worth £1 million in May 1979

Source: Knight Frank Residential Research Source: Knight Frank Residential Research

Annual growth 6-month growth Monthly growth

FIGURE 3 Rental value growth in prime central London by area between January and November 2014

DATA DIGESTThe Knight Frank Prime Central London Index, established in 1976, is the longest running and most comprehensive index covering the prime central London residential marketplace. The index is based on a repeat valuation methodology that tracks capital values of prime central London residential property. ‘Prime central London’ is defined in the index as covering: Belgravia, Chelsea, Hyde Park, Islington, Kensington, Knightsbridge, Marylebone, Mayfair, Notting Hill, South Kensington, St John’s Wood, Riverside* the City and the City Fringe. ‘Prime London’ comprises all areas in prime central London, as well as Barnes, Canary Wharf, Chiswick, Clapham, Fulham, Hampstead, Richmond, Wandsworth, Wapping and Wimbledon.* Riverside in prime central London covers the Thames riverfront from Battersea Bridge in the west to Tower Bridge in the east, including London’s South Bank. The City Fringe encompasses the half-mile fringe surrounding most of the City including Clerkenwell and Farringdon in the west and Shoreditch and Whitechapel in the east.

Knight Frank Prime Central London Index

KF Prime Central London

Index

12-month % change

6-month % change

3-month % change

Monthly % change

Nov-13 168.9 -2.4% -1.6% -0.9% -0.3%Dec-13 168.3 -2.3% -1.9% -1.2% -0.4%Jan-14 168.6 -2.0% -1.3% -0.5% 0.2%Feb-14 168.0 -2.3% -1.5% -0.6% -0.4%Mar-14 168.4 -2.0% -1.1% 0.1% 0.2%Apr-14 169.0 -1.6% -0.2% 0.2% 0.3%May-14 169.4 -1.4% 0.3% 0.8% 0.2%Jun-14 170.9 -0.4% 1.6% 1.5% 0.9%Jul-14 171.7 0.5% 1.8% 1.6% 0.4%Aug-14 172.5 1.2% 2.7% 1.9% 0.5%Sep-14 173.0 1.6% 2.7% 1.2% 0.2%Oct-14 173.8 2.6% 2.9% 1.2% 0.5%Nov-14 173.8 2.9% 2.6% 0.7% 0.0%

Source: Knight Frank Residential Research