west end residential our patch, our view q2, 2015 patc… · quarter of 2015, for an average of...

West End residentialOur patch, our view Q2, 2015

2–3

On a macro level, the UK economy remains strong with consumer confidence at its highest point in 15 years and interest rates still at a record low of 0.5%. GDP grew by 0.4% in Q1, higher than anticipated, and UK house prices rose 5.5% in the year to April 2015. The wider London market too remains stable, continuing its expected calming from the highs of summer 2014 to a place of more sustainable growth, but within this setting of market moderation, activity in the residential development market remains strong.

In terms of buyers, London continues to attract overseas investment. In 2014 there was a marked increase in Middle Eastern interest. This reflects London’s reputation as a safe haven for investment. This trend has continued into 2015, yet we have also seen continued interest from domestic buyers who now make up 60% of the market. The international interest extended to our lettings team, who reported a particularly strong interest from Chinese students.

A total of 93 tenancies were agreed by the team in the second quarter of the year with a total value of over £60,000 per week; more than double that achieved in quarter two 2014. Demand for rental properties across the West End remains strong and we expect this to only increase as the student market becomes much more active in the third quarter of the year in anticipation of the commencement of the academic year.

We hope you enjoy the latest edition of Our patch, our view. If you would like any further information please do not hesitate to contact myself or a member of the team.

Overview

Following a period of pre-election caution – mainly precipitated by the threat of a potential mansion tax – the market bounced back on the news of a Conservative party majority. As a result there was resurgence in sales in our patch during Q2, with average values up 31% on last quarter and 22% on last year.

Jamie Gunning Senior Director

T: +44 (0)20 7182 2005 E: [email protected]

4–5

Sales overview

Q2 was a tale of two halves: during the pre-election build-up, the market slowed. This reflected concerns about a possible mansion tax. In contrast the latter part of the quarter, post-election, post Conservative victory, the market soared. In fact, the weeks following the election saw enquiry levels increase by 25–30% when compared with the period directly before the election. The relief regarding mansion tax was clear from a surge of post-election deals being agreed.

The West End team agreed the sale of £42.9 million worth of property in the second quarter of 2015, for an average of £1,754 psf, which represents an 8% uplift on last quarter. The average value of properties sold was £1,864,022 which is 31% higher than it was last quarter and 22% higher than it was in Q2 2014.

Sales in the second quarter of this year were distributed as 61% new build and 39% resale, with new build properties attracting a 31% premium on resale properties. The average price of a new build was £1,935 psf in comparison with £1,472 psf for a resale.

The vast majority of properties on the market this quarter were priced in the £1,251 – £2,000 psf bracket, with 64% of all sales falling within this range.

Buyer demography followed the typical pattern again this quarter, as domestic buyers snapped up almost 60% of our listings. Buyers from Asia and Europe were also active, particularly at the £2,000,000 plus price bracket.

Q2 2015 Sales snapshot

Total value of properties sold £42.9m

Average £psf £1,754

Average new build £psf £1,935

Average resale £ psf £1,472

Highest £psf £2,524

Average sales value £1.9m

£ p

sf v

alue

s

Forecast

1,600

2,000

1,200

800

400

0

Q1

‘09

Q2

‘09

Q3

‘09

Q4

‘09

Q1

‘10

Q2

‘10

Q3

‘10

Q4

‘10

Q1

‘11

Q2

‘11

Q3

‘11

Q4

‘11

Q1

‘12

Q2

‘12

Q3

‘12

Q4

‘12

Q1

‘13

Q2

‘13

Q3

‘13

Q4

‘13

Q1

‘14

Q2

‘14

Q3

‘14

Q4

‘14

Q1

‘15

Q2

‘15

Q3

‘15

Q4

‘15

Q1

‘16

Q2

‘16

Q3

‘16

West End values 2009 to present

58%Buyers originating in the UK

8%Average £psf growth over last quarter

31%Premium on new build properties

Computer generated image for indicative purposes onlyCBRE Research, Q2 2015

6–7

Case study Gatti HouseThis spectacular Grade II listed building has been sympathetically restored to its former glory and stature. Inspired by its beauty and enthralling history, the developers and design team felt a duty to bring it back to life and the results are breathtaking.

Consisting of four unique and beautiful flats, all designed in different styles, CBRE Residential launched this development after the election with prices starting at £2,950,000 going up to £5,950,000. To say it has been a huge success is an understatement, with the development now 75% sold. This scheme epitomises what Covent Garden has to offer, the sorts of developments we are involved with and why the opportunities in the West End are so unique.

Sales forecast As we move forward into Q3, it is expected that traction will continue to increase as more buyers come back to the market. The recent lack of rapid price growth, in contrast with previous years, is bringing much needed stability back to the market. In addition, impending stock shortages present those properties currently available as fantastic prospective investment opportunities for savvy buyers.

While levels of boutique schemes within the west end area are currently good, it is expected that these levels will diminish significantly in the longer term. This is a direct result of both the increase in commercial rents together with the implementation of tighter restrictions on conversions from commercial to residential, from Westminster Council in particular.

Price range - Sales Q2 2015Q2 2014

Purchaser origin Q2 2015 Purchaser occupation Q2 2015% Percentage % Percentage

United Kingdom 58Europe 16United States 5 Hong Kong 5Sweden 5UAE 5Chinese 5

Finance 44Other 22Media 17Medical 11Property 6

Price range (£psf)

% P

erce

ntag

e o

f sal

es 35

40

30

25

20

15

10

5

0

<1000

1000-12

50

1251

-1500

1501

-1750

1751

-2000

2001

-225

0

>2250

Many buyers realise the unique property potential in the West End, as many buildings provide more than traditional residential areas, due to their historic origins as offices and warehouses. From unparalleled lateral space to individual architecture and design, whatever you are looking for in your next London property, you will find it in Covent Garden and Soho. However there is only a finite amount of available property, as planning constraints are restricting office to residential conversions moving forward, and large scale developments are increasingly rare here.

Essentially, this limited availability in an ever improving location makes the West End the perfect place to live, work, play and invest and buyers are having to increasingly act more quickly in order to secure their perfect home.

CBRE Research, Q2 2015

8–9

Lettings overview

The total number of lettings achieved in the second quarter has steadily improved over the last three years, with 93 tenancies agreed in Q2 2015 – a 31% increase on Q1 figures and double the number agreed in Q2 2014. The total rental value achieved was £60,784 per week, up 22% on the previous quarter and almost double that achieved in Q2 2014.

Average rental values have risen 9% over the last year to £654 per week, equating to £49 psf. The highest values achieved this quarter were in 1, 14 King Street which was let for £659 per week equating to £80 psf.

We saw strong growth across one and three bedroom units over the last year. Average rental prices for one bedroom apartments increased by 4% to £552 per week and three bedroom properties saw growth of 7% to £1,442 per week.

In terms of tenancy length, the average period was 51 weeks with 30% accounted for by finance professionals and those in media related fields, whilst 27% of tenants fell into the student category. As usual with the lettings cycle, we expect the proportion of student lettings to further increase over the next quarter in preparation for the new academic year.

We saw the proportion of lettings to domestic tenants fall from 47% to 32% since last quarter. Comparatively, 28% of occupants originated from the rest of Europe, 14% from the Americas and 15% from Asia.

Q2 2015 Lettings snapshot

Total number of properties let 93

Total value of property let* £60,784

Average rental value per week £654

Average size of rental property 653 sq ft

Highest rental value achieved £80 psf

*Based on price per week

9%Annual increase in rental values

£80psfHighest rental value achieved

30%Proportion let to finance professionals or those in media related fields

Over the past few years the West End lettings market has been steadily strengthening. This has been fuelled by the general improvement in wider economic conditions, combined with an increasing demand for properties within the West End area from both professionals and students.

10–11

Case study 14 – 15 King Street After providing development consultancy advice on two blocks, each consisting of four units, we launched them to market in two phases. The first to launch was Block 15 and all units were let within four weeks, two of which achieved the asking prices while the remainder achieved above the asking prices. These averaged at £72 psf.

Similarly, when Block 14 was launched it enjoyed equal success with all units let within four weeks for an average of £77 psf.

Lettings forecast As predicted, the second quarter of 2015 saw an increase in rentals to overseas professionals being relocated to London – a trend we expect to continue into Q3. In addition, the number of student tenants rose steadily and we expect a further sharp rise in these numbers in Q3; with the start of the academic year looming, they look to secure good quality rental accommodation.

Price range - Lettings Q2 2015Q2 2014

Tenant origin Q2 2015 Tenant occupation Q2 2015% Percentage % Percentage

UK 32Europe 28Asia 15 Americas 14Unknown 4Far East 4Oceania 1Africa 1

Student 27Finance 15Media 15Film / Theatre 9Other 9Serviced Apartment 9Retail & Fashion 6Healthcare 3Property 3Legal 2Embassy / Government 1Retired 1

Price range (£ per week)

<300

301-

400

401-5

00

501-

600

600-750

751-1

000

1001

-1500

% P

erce

ntag

e o

f let

ting

s

15

25

20

30

35

10

5

0

>1500

Specifically we expect a pronounced increase in demand from Asian students, who usually become very active in the months leading up to September. The stock in demand varies from studios to three bedroom apartments, depending on the preferred living arrangements of the tenant. New build developments, refurbished and managed apartments are particularly favoured by the parents of these students who tend to feel most comfortable with their children living in a secure block with little or no maintenance problems and the added benefit of an on-site porter or security staff. Having the property furnished also seems to be a more popular choice, with furnished properties accounting for over half of our deals this quarter.

Serviced apartment operators have been very active in terms of viewings this quarter, so it would be expected that the number of tenancies taken by such operators would increase considerably in the next three months as they experience greater demand from their corporate tenants.

In summary, the West End, especially Covent Garden and Soho, are increasingly being referred to as the new upmarket area and our profile of tenants and rent increases are proving this quarter on quarter. Part of the reason for this is the high number of developments in the area which are being converted or refurbished to the highest of standards. For years, we have been part of this change in property and its perception in our patch, offering our clients a 360 degree service; from acquisition, development consultancy advice, sale and finally letting and management. A major part in making this area high-end is ensuring the highest level of specification and interior design. We are looking forward to the next three months which are traditionally the busiest in terms of viewings and agreed tenancies.

CBRE Research, Q2 2015

12–13

Property management overview

The average rent in the West End is up 2% on Q1, highlighting market upturn. Managed property voids are, on average, 18% less than non-managed, which indicates tenants are keen to secure a professionally managed property with all the benefits this brings. Additionally, voids are 72% less than Q2 last year, this is a positive indicator that the market is very competitive.

16% more students are letting properties in Q2 than Q1, showing the expected increase of students securing properties for the next academic year. There has been a 31% increase in students moving into properties in Q2 when compared to Q2 last year. This reveals a dramatic shift in students moving to the area and insisting on managed properties which give (often overseas students) families comfort in knowing the property will be well looked-after and secure.

Overall, we are seeing a very buoyant and competitive market compared to last year ensuring landlords’ managed properties are occupied for longer, thus increasing their return.

9 daysAverage void period for a managed property compared to an unmanaged property which has the average void period of 11 days

£602 pcmAverage rent for managed property

99%of properties rent at market rent

14–15

Scott CabotAnalyst


Ben KirtleySenior Sales Negotiator


Shaun MacnamaraSales Manager


Jonathan MyersSales Negotiator


Craig SimpsonSenior Sales Negotiator


Ian ParsonsSales Negotiator


Andrew ChambersSenior Sales Negotiator


Samuel AstonSales Negotiator


James BurrowsAssociate Director


Sales

Sophie DanesAssociate Director


Vanesha PancalManagement Assistant

T: +44 (0) 20 7420 3004 E: [email protected]

Jennet SiebritsHead of Residential Research


Phillippa DrysdaleAnalyst


To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at: www.cbre.com/researchgateway

CBRE Limited confirms that information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt their accuracy, we have not verified them and make no guarantee, warranty or representation about them. It is your responsibility to confirm independently their accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE. ©2015 CBRE Ltd.

Development Consultancy

Kathryn DurrantSurveyor

T: +44 (0)20 7420 2235 E: [email protected] m

Lisa HollandsExecutive Director


Guy PasseySenior Director


Jamie GunningSenior Director


David JW SmithAssociate Director


Charlie PhilipDirector


James MashiterDevelopment Consultant


Lettings and Property Management

Research

Alie HortonAssociate Director


Mike KnowlesLettings Manager


Emily PooleSenior Lettings Negotiator


Daniella Waterman-CollinsLettings Negotiator


Lydia MintoRenewals Negotiator


Jonathan RogersLettings Negotiator


William PorrittLettings Negotiator


Jessica PenberthyLettings Negotiator


west end residential our patch, our view q2, 2015 patc… · quarter of 2015, for an average of...

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