Top End London Prices Affected By City Turmoil

A warning has come that high end London house prices could be affected by the financial crisis that has hit world markets. City bonuses are likely to be cut after the credit crunch has had an adverse impact on so many financial firms.

Chief executive of upmarket estate agents Savills, Aubrey Adams, last week warned that an expected slump in pay to top bankers could knock about a third off prices rises for the top end of London’s property market. The credit crunch has already has an impact on commercial property deals.

So far this year there have been increases of 15% for houses in the market above £18m, but these are likely to drop back to increases of 10%.

“There is such a shortage of good properties around that if the City bonus people fall out, there are always other buyers who will take their place. Demand from overseas buyers and wealthy British ones is extremely strong”, said Mr Adams.

At Candy Brothers’ One Hyde Park, where Savills are acting, the going rate is currently £4,000 per square foot, making the penthouse flats around £84m. The development, according to Adams, is nearly all sold already. There are other similar sites coming along such as the Candy & Candy planned development at Chelsea Barracks, and a £1bn redevelopment of Fitzrovia’s Middlesex Hospital. These luxury developments are aimed at the super-rich, and Adams say: “I don’t doubt these sites will go very well.”

Adams anticipates that the middle-class part of the market will see much slower growth, expecting this years’ growth of 7% to slip back to 5% in 2008. The market he’s talking about here is the range of £800,000 to £900,000 in places like South-west London, where, he says, “it’s still generally very good.”

There are, however, likely to be problems with the buy-to-let type of flats that have been built in cities such as Manchester and Nottingham, which have shown distinct signs of a slowdown in the market.

Savills does 80% of its business in commercial property. Here it has found that the credit crunch has had an immediate impact as companies have been finding it far more expensive to get funding for debt to buy new offices. As a result the number of commercial transactions has come down.

“Things have not got as bad here as in the US, but it is true that some people are running a bit scared,” said Adams. “The unsettling effect of the debt markets will take a month or so to work itself through.”

There is still a shortage of supply of prime office locations, so these have not been hit as badly, but more average sites were suffering from lack of interest. As property values slip, so rental yields on properties might start to increase ‘a bit’, Adams thought, by about 0.5%.

Adams follows in the footsteps of developers Hammerson and Segro in warning that the credit crunch will have an impact on demand. Adams did add, however, that there would not be a major crisis unless banks started letting staff go. It has happened yet, but with Northern Rock’s latest news, anything could happen next.

Tom Smith
18th September 2007

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