Prime Central London property up 116% in last eight years

Central London house prices have more than doubled in the past eight years, by 116% and outpacing the Retail Price Index (RPI) by 86%, new research shows.

The average UK property price is 19.3% down on the same period, according to research from Savills which tracks the expansion and analyses in detail the performances of different locations in the latest market cycle since its indexes were launched in 1979.

Central London property prices have grown on average 4.9% per annum since 1979. This compares to just 3.6% above inflation across greater London and a UK average of 2.9%, opening the gap between prime London and the rest to its widest ever.

Mayfair tops the growth chart with growth of 139% since the middle of 2005, followed by Knightsbridge, Belgravia and Chelsea with a growth of at least 128%. All are now at least 30% above peak.

The analysis points out that supply has failed to keep pace with demand, resulting in an expansion of prime London from its Belgravia core in the 1950s to a swathe that runs from Richmond in the south west to Islington in the North, from Chiswick in the west to Canary Wharf in the east.

‘London is seen as one of the premier world cities in which to both live and invest. London’s economy has been put at nearly a third the size of that of the whole of the UK. Like other global cities, London attracts capital from around the world,’ said Yolande Barnes, head of World Residential Research.

She pointed out that demand for London housing is therefore global and the appetite for investment remains strong. Also London is physically limited in size and by very low levels of new supply so real house prices have risen much faster than elsewhere.

‘London is a honey pot for wealthy real estate buyers but many of these buyers also live and work in London. It would seem that London’s housing market is inextricably tied with its economic success but it has been failing for some time to increase supply at a sufficient rate to curb price growth,’ said Barnes.

This means that the lack of housing supply is playing out most visibility in London’s prime housing markets where the wealthiest home owners can compete most effectively for space.

Looking forward, the analysis suggests that the strength of outer London prime markets will be dictated by the creation of new wealth from the London economy and the flows of wealth between prime markets.

The report says that generally, over the next five years, London and the south-east are expected to lead the economic recovery in the UK. In London, the economic growth from the all-important financial and insurance sector is likely to be on a par with the average for the capital. The highest economic growth is forecast from the professional scientific and technical and information and communication sectors.

‘These sectors will, like financial services before them, also attract international investment and human capital which is expected to be reflected in overseas demand for housing. This is likely to widen the profile of buyers and support underlying housing demand for prime property beyond central London,’ it points out.

It also suggests that there will be increased demand in the commuter zone; given the gap between pricing in these markets and prime domestic London.

‘We expect to see a continued displacement of wealth from the prime central London markets into other parts of prime London and beyond. The markets in closest proximity to prime central London will see continued overseas buying activity, mainly from full time residents in the capital. This means the prime central London and other prime markets will remain linked,’ adds the report.