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Is There Instability Ahead for London's Luxury Homes?

By +Eric Jafari

London InstabilityThe London property market may not be as stable as was originally thought, with one expert suggesting luxury real estate price levels could be unsustainable. Chief executive of the Grosvenor Group, Mark Preston, told Reuters that the rate of growth in the prime sector is beginning to look shaky, after years of overseas buyers throwing cash into the market.

Since 2009, luxury home prices have increased by 53 per cent. International corporations have been quick to establish a footing in London, and as a leading business hub, its cachet has seen the world's well-heeled relocate to the city. Consequently, high-end property has been in high demand. The Arab Spring and political uncertainty in Russia has also made London more attractive.

Mr Preston explained to the news provider: "The extremely high rate of growth over the last two, three years is a thing I'm concerned about and I think it's probably unsustainable. As those crises recede then perhaps there's less interest in capital moving internationally for safe haven reasons. (And) we're reaching values in prime London that are just extremely high by historic standards."

For investors primarily working in prime markets, this means that it may be wise to diversify portfolios and Grosvenor are already doing just that. Mr Preston told Reuters that the company will be investing in Canadian residential and British rental homes to offset risk.

However, the appetite for luxury London property can't be denied and this isn't just visible in the residential market. Cushman & Wakefield revealed in February that international investors are still attracted to high-end stores in areas like Bond Street and Sloane Street. This is turning into fierce competition and for every store that becomes available, there are approximately ten international brands competing for it - a rise of around 20 per cent since 2012.

Rents are already high in these areas, but could be pushed even higher if a landlord can secure a vacant possession and offer a shop on open market rent. Zone A currently rents at GBP 800 per square foot in Bond Street, rising by £200 over 2012. However, in the southern section of the street, rents can reach £1,000 per square foot.

17 April 2013

Tags

London Prime Property Market,Luxury Property,London Property Demand