Rental Market: Million-plus lettings surge as HNW buyers wait & see

It looks like London’s super-rich are opting for to wait and see for the next 12 months, as the very top-end of the rentals market – with six and seven figure annual rents – booms.

Delaying a property purchase by a year might cost HNW’s upwards of £1m in rent, but, that’s less than a £25m to £100m outlay for an ultra-prime property.  The Stamp Duty changes will be most marked in the top 5% of the UK housing market. The UK’s multi-million pound housing market is largely concentrated in Prime Central London and wealth pockets in the Home Counties, this is where the Stamp Duty changes will be felt most strongly. It is in London’s £3 million to £10 million price band where the changes will have the biggest impact, here the market will almost come to a halt, and obviously this will effect estate agents, buying agents and developers in this sector. It is believed that the deep slowdown will last for the next six months and then the market will adjust and sales will continue. In the £10 million to £15 million price band the market will slow, but the effect will be less and the impact will be shorter. In the £15 million plus sector the impact will be relatively minor. Most people in this ultra-prime sector don’t even know what Stamp Duty is – it’s something their financial advisors and lawyers deal with.

Of course delaying a purchase might prove to be a costly decision: it’s unlikely that the extra SDLT bill will go away after the election, and there’s every chance that additional taxes will be implemented. And house prices are far more likely to rise than to fall over the coming year.

Across prime central London, the average rent paid in Q3 2014 was 6.5% up on the previous 12 months; the highest rate of growth for more than three years.

The average ultra-prime rent (top 5% of the market) in London now stands at £3,500 per week (£182,000 per annum; more than the £177,299 average property sale value in England and Wales), representing a 23% increase on 2009’s level. The entry level to this top 5%, meanwhile, stands at it’s highest ever point (according to Dataloft), at £9,000 per month (£108,000 per annum).Beauchamp November_Min price paid

The annual rent roll from ultra-prime London rentals agreed in the first nine months of 2014 is equivalent to £102m in annual rental income. This represents 21% of the total annual rental income of all lets agreed so far this year across PCL.

And things are really cooking right at the top of the top-end, with a 12.8% jump in the number of £10,000+ per week properties let this year compared to the same period in 2013.

The million-pound rental market came into being back in 2010 and since then prices have spread beyond Mayfair and Knightsbridge to Chelsea, South Kensington, Notting Hill, Regent’s Park, St John’s Wood and Holland Park.

Some further insights from Beauchamp Estates’ ultra-prime rental market insight report:

  • The ultra-prime rental market is evenly split between flats (51%) and houses (49%).
  • Houses tend to be rented by ultra-wealthy continental Africans, Middle East tenants and Russians/CIS, who have made their wealth from oil, gas, investments or commodity trading.
  • In the last two years wealthy Africans, especially Nigerians, have become a driving force in the luxury resi market, replacing Russians and Ukrainians whose numbers have declined.
  • Luxury apartments and penthouses tend to be let by UK, North American, Continental European and Asian households, working predominantly in banking, financial services or advertising/marketing, and are on secondment to London for a couple of years.
  • Mayfair is London’s top lettings address: In 2009, Mayfair had only 5% of the ultra-prime market lets, but by mid 2014 its share had risen to 13% and, with Mayfair’s pipeline of new developments, is forecast to rise to 15% over the next three years.
  • In the year to date, the other top lettings addresses are Chelsea and South Kensington, each accounting for 13% of high value lets.
  • Other key luxury lettings locations are Knightsbridge, Belgravia, St John’s Wood, Regent’s Park, Notting Hill and Holland Park.
  • For ultra-prime houses, the typical letting is a 12,000 – 16,000 sq ft mansion or ambassadorial house on a 1-3 year tenancy. Key “must have” features include a private cinema, wine cave, private gymnasium with swimming pool, lifts, ample parking facilities and substantial landscaped gardens.
  • For ultra-prime apartments, the typical letting is a 5,000 sq ft penthouse with concierge and 5-star hotel style facilities, private gymnasium, state-of-the-art entertainment, lighting and comfort cooling systems and large rooftop gardens with panoramic views over London.

Whilst the ultra-prime lettings market has boomed during 2014 the equivalent sales sector has been affected by the uncertainty in the market caused by the pending general election and the issues over the Mansion Tax. Hence general view is that what George Osborne has done with the Autumn Statement is very clever, in one broad sweep with the Stamp Duty changes he has made 98% of the population very happy about the adjustments and he has also defeated any change of Labour introducing a new mansion tax, which will bring certainty to the housing market which is a critical factor in confidence in the sector.