The prime London sales market recorded a mixed picture in June, new data from LonRes shows.

There was some slight annual growth in values, although this was countered by a fall in transactions.  The June lettings market continued its post-pandemic trends of falling supply and rising rents.

Achieved prices were 0.6% higher than June last year, the first rise since November 2022, while transactions were 11.8% lower. Compared to June 2017-19 (pre-pandemic) values and transactions are both up – by 4.6% and 9.0% respectively.

Leading indicators of sales activity shows cause for cautious optimism.  The number of properties under offer in June was more than 6% higher than a year earlier and new instructions are also growing steadily, up by 4.6% annually.

Sales activity in the £5m+ market fell compared to June last year – by 14% – but remains high in a wider context.  Transactions are more than 30% higher than the pre-pandemic average.

New instructions, for the £5m+ market, in June were also up – 24% higher than a year ago and 72% above the pre-pandemic average.

Annual rental growth stayed in high single-figures, at 8.0% for June.  This takes rents to almost 28% above their 2017-19 (pre-pandemic) average.

Rental demand is so strong that a significant proportion of properties are being let without listing, so are not captured in the data.  LonRes data for June indicated an annual fall of 30% in lets agreed and a 0.9% in new instructions, with activity around half pre-pandemic levels.

Table 1 – Monthly Prime Data – June

Source: LonRes

The year so far has been quiet for most of the prime London sales market but last month saw a small uptick in its fortunes.  Average achieved prices rose in June, taking annual growth into positive territory for the first time since November at 0.6%.  While values remain below their 2014/15 peak, they are 4.6% above average 2017-19 levels.  Prime inner London** remained the strongest sub-market, with a 3.5% annual rise.

Transaction volumes in June were 9% above their 2017-19 level, although compared to the same time last year were down by 11.8%.  New instructions were 4.6% higher than a year earlier, and 20.5% above their 2017-19 level (table 1).  The number of properties going under offer was 6.3% higher than last June, potentially indicating further increases in sales activity over the months to come.  However, the time properties are taking to go from under offer to exchange is increasing, and numbers of withdrawals and fall throughs are also growing, suggesting some buyers may be feeling uncertain about the market.

Over the first half of the year, transaction volumes are down around 20% across all areas of prime London compared to a year earlier.  This annual change is broadly the same pattern across all price points.

The longer-term comparison is very different, with significantly higher activity in the £5m+ market, where there were 17.3% more sales compared to the 2017 – 2019 H1 average.  This is purely a reflection of increased activity and not a result of rising values nudging more properties into this band – there has been limited price growth over the period in question.

New instructions of properties priced at £5m or more reached a record high in June, up 24.4% on the same month a year earlier and 71.7% above average 2017-19 levels.  Sales activity is not quite keeping pace with this extra supply.  Transactions in June were down by 14.3% on an annual basis but still 31.7% higher than average 2017-19 levels.

However, future sales could pick up, as the number of properties going under offer in June increased (+32% annual growth).  Vendors’ motivation in this market appears to be strong too, as the number of price reductions being recorded is high and growing (+96.5% higher in the first half of the year vs the first half of 2022).

The growth in supply is not equally distributed across super prime neighbourhoods.  New instructions of £5m+ properties in Mayfair are more than double their pre-pandemic (2017 – 2019) average level, with most of this increase arising in the past year (chart 2).  By contrast, new instructions in Knightsbridge & Belgravia have fallen on an annual basis and are only 12.1% higher than their 2017 – 2019 average.

Across prime London, annual rental growth in June was 8.0%.  This takes rents to almost 28% above their 2017-19 (pre-pandemic) average (table 1).  Prime fringe*** was the sub-market with the highest growth, at 10.3%.

Rental demand is so strong that a significant proportion of properties are let without ever being listed which means they are not captured in the data.  Our data for June indicated an annual fall of 30% in lets agreed and a 0.9% fall in new instructions (table 1), with activity around half pre-pandemic levels.

While average rental growth across all property types has been high over the past two years, there are some interesting differences.  Compared to rental values in January 2020, studio flats have seen the most growth, at 29.0% (chart 3).  They are closely followed by houses and 3+ bed flats.  One and two-bed flats – traditionally the most popular rental properties with tenants – have seen slower rises of around 20%.

These findings could be a result of two separate trends.  The first, favouring small properties, could well be due to changes in working patterns post-pandemic.  Workers who have moved out of London are now requiring a small pied-a-terre as they return to the office.  The second is more affordability-based, with tenants opting to share larger properties rather than choosing a one or two-bedroom flat.

Nick Gregori, head of research at LonRes, commented: “At the halfway point of 2023 the prime London sales market remains mixed. Sales activity is down on last year but broadly in line with typical pre-pandemic years.  Buyers are still out there and they are keeping the market moving and underpinning values – at least for now.

“The £5m-plus market in particular, has seen a record high June for new instructions and while sales have not quite kept pace with supply, under offers have picked up (by 32% on June last year) which suggests sales coming down the line.

“It’s difficult to ignore the turmoil in the mortgage market, which is set against an uncertain economic backdrop.  Both factors are undoubtedly impacting sentiment among buyers and sellers across the wider UK housing market.  While prime London is driven largely by discretionary buyers and in many ways operates quite differently from the mainstream markets, we are hearing anecdotal reports of buyers expressing nervousness around the political situation and expectations of a change in government.

“Combined with the economic outlook and forecasts of price falls, it is no surprise that some people are in no rush to buy this year.

“June saw little change in the prime London lettings market, with rents continuing to grow and new supply thin on the ground.  It’s interesting to see rental growth has been strongest for smaller properties as working patterns shift and affordability begins to bite.”