Knight Frank has predicted that London will remain the “gold bullion” of the real estate market despite a volatile world economy.
“A year-and-a-half ago a barrel of oil was enough to buy you a bottle of 2004 Pol Roger champagne. Today, it could buy you a bottle of Tesco’s own label,” says James Roberts, Knight Frank’s chief economist.
“Oil may have shrunk to the level of supermarket champagne but London remains a Pol Roger.”
The firm predicts that while emerging markets and export-driven economies are in the middle of a downturn and despite concerns about Brexit, London will remain a bright spot.
A combination of tech growth in existing industries and new foreign entrants into London will support occupier demand this year.
But with supply at its lowest level for 14 years, and with 7.1m sq ft of speculative development in the pipeline, rents are forecast to be driven even higher.
The top floors of city towers are now joining Mayfair as a super-prime residential rental market and Canary Wharf has the most potential for rental growth, with a 12.8% increase expected.
While rising rents in “halo” fringe areas such as Shoreditch are catching up with the city core, emerging new districts such as Battersea Nine Elms and White City are poised for success, Knight Frank said.
Interest rates are likely to remain at low levels and, combined with new entrants into the debt market in 2016, should maintain the cost of borrowing, which will bolster the available capital.
According to Knight Frank, the largest macro issue in the residential market is undersupply, with focus to be placed on affordability this year.
The impact of the new, higher rates of stamp duty are predicted to lead to a reduction in off-plan sales for buy-to-let investors, which will change development strategies, with fewer towers being built.
Though development volumes will shrink, PRS is likely to take up the slack of off-plan buy to let.
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