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'Sharp shock' shatters London prime

New research has revealed that ‘volatile' London prime markets are falling sharply.

The value of prime central London property fell by 5.5% in the second quarter of 2008. This follows two quarters of less severe falls, bringing the total fall since the peak of summer of 2007 to 9.0%.

Savills Research suggests that this is the first indication of a pattern that will see a ‘sharp shock' in the prime London market, as the balance shifts further in favour of supply over demand, but that this will be followed by a rapid recovery in values, well ahead of the mainstream when the turnaround comes.

Key findings

- Prime central London values fell by 5.5% in the second quarter of 2008, with current values now a total 9.0% off their peak of nine months ago, as the impact of the credit crunch deepens.

- The very top end of the market is showing signs of slowing, but is not declining. Values in the £5m+ bracket have flattened while the £10m+ bracket recorded a further 1.2% increase in values in the second quarter of 2008. This is supported by the scarcity of the product which continues to be outstripped by demand.

- The hardest hit areas are Holland Park, Kensington and Notting Hill saw the sharpest falls, down 11% in six months. The south-west areas (Fulham, Barnes, Putney, Richmond) saw falls of 8.6% in the same period.

- Rental values have continued to grow steadily, with vendor reluctance to sell resulting in an additional flow of stock to the sector. Rents are expected to rise by 6% by the end of 2008.

Correction ‘long overdue'

Yolande Barnes, Director of Savills, continued: "Analysis of previous trends infers that history is, in part at least, beginning to repeat itself, with the more volatile prime London markets falling more sharply than the mainstream.

"This sector of the market is coming out of an extraordinary period of growth and a price correction should come as no surprise, particularly given the prevailing economic circumstances."

"Whilst we expect to see further falls in 2008, leaving values down 15% year on year by the end of the year, and acknowledge the prospect of further falls in 2009, we do expect the prime central London market to be one of the first to recover, and to recover rapidly, potentially returning to growth in 2010".

Jonathan Hewlett, Head of Savills London Region, added: "A correction in prime central London prices, though not welcome, is long overdue, though the long term fundamentals of the market remain sound. We haven't yet seen the bottom of this particular cycle, but buyers will need to keep a close eye on the market - when it turns, it will turn with speed."