Market Report – Winter 2011 / 2012

Monday, January 09, 2012 by Michael Hodgson

……. Looking therefore at D&G land as a whole, our predictions for 2012 are that capital values will rise by approximately 8% and rental values by approximately 4%.

Perhaps even more than in prior years, the sentiment this January is that is time to put behind us 2011 with all its financial problems and political upheavals. But how confident can we be that 2012 will be any better? For those of us closely involved with the London property market, it’s a time for prediction. I am sure that all of us who play that risky game look nervously back twelve months to see what we said and probably choose to move onto this year’s prediction! As it happens, looking at “D&G land” overall, we didn’t do too badly. A year ago, we predicted “an increase of 5% but this may prove to be conservative”. It was. Property prices in “D&G land” overall increased by 9.8% in the twelve months to December 2011. For lettings, we expressed our view that “rents are set to increase by another 10% in 2011”. The result, however, was an 8.1% increase – so our predictions have not been too bad.

Perhaps more interesting is the variation in performance between Prime Central London and the contiguous areas around PCL serviced by D&G’s offices. PCL’s performance in the twelve months was a capital increase of 13.59% and a rental increase of only 3.36%. In contrast, “non PCL” saw capital rises of 8.54% and rental increases of 10.18%.

The variations in performance between “PCL” and “non PCL” reflect the realities of supply and demand in the different locations. Prime Central London has been a magnet for capital from all over the world, particularly that part of the world that has seen most disruption in 2011. The Arab Spring and the Euro crisis have given momentum to the Prime Central London market. The PCL rental market, in contrast, is more a reflection of employment opportunities and financial uncertainties have dampened demand, particularly in the final quarter which saw a fall in rents for the first time since the beginning of 2009.

In non PCL, capital increases have been less spectacular but still demand has been firm with a great deal of UK money going into the market, much of it through assisted first time purchases. Supply has been fairly tight throughout the year, as indeed it has been on the rentals side where rents have increased by more than 10% (with no fall back in the final quarter, as experienced in PCL) - a reflection of the inability of most young professionals to obtain finance to purchase.

Outlook for 2012

Overall, we are not expecting any shocks in 2012. We do not anticipate that prices in PCL will move ahead quite as strongly as in 2011 but do expect increases to be in the 8 to 10% range, particularly if there is increased financial instability in Europe and increased political instability in the Middle East. We think there will be little movement in rents and possibly rents for some properties will decline, particularly at the upper end so overall, yields in PCL will tighten. In non PCL, we see less scope for price increases which are likely to be more affected by employment opportunities in Central London but we do think that the limit in supply will hold values up, resulting in an increase in the region of 5 to 6% over the year. On the lettings side, supply again is so short that even with uncertainties in the employment market, we think that rents will move ahead by 3 to 5%.

Looking therefore at D&G land as a whole, our predictions for 2012 are that capital values will rise by approximately 8% and rental values by approximately 4%.


Michael Hodgson