Although Cluttons is forecasting a 1.2% drop in values this year, it expects prices to pick up again from next year onwards, driven by greater clarity surrounding the outcome of the UK’s Brexit negotiations with the EU.
“It’s in 2018 when our model suggests a turnaround of 1.8% and this is predicated on clarity emerging as we approach the end of the two-year Brexit negotiations, which are expected to commence imminently,” says Faisal Durrani, head of research at Cluttons.
Similarly, the company is forecasting a fractional dip in rental values this year before rental growth returns in 2018. Over the next five years, rents are expected to increase by 9.1%.
The current weakness in the residential sales market is having a knock-on effect on the rental market because some owners have become “accidental landlords”, electing to rent out properties they have been unable to sell, Cluttons says.
“This has been reported by all our central London offices for a number of months now. Tenants are very much in the driving seat and are spoilt for choice,” says Durrani.
The letting and sales markets in prime central London endured one of the toughest years of recent times in 2016.
Rents fell by 2.2% and capital values were down 3.8%. However, the headline figures hide some major variations between properties at different price points and in different postcodes. Prices for houses above £5m fell by 8% on average and in the most expensive areas of Belgravia, Chelsea, South Kensington and Knightsbridge prices fell by between 9% and 11%.
Although Cluttons predicts that the market will remain subdued this year, it says there are signs that values are stabilising. In the fourth quarter of 2016, capital values fell by just 0.4% as buyers and sellers returned after a “Brexit-induced hiatus”.
“Buyers are having to rapidly top up offers to within a whisker of asking prices in order to complete deals,” says Durrani.