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What makes an area stand out as a prime location in London? Our research points to four main factors at play: good levels of top-end housing stock, either established or within new developments boasting iconic architecture; a central location; good transport links and finally, excellent retail and leisure facilities.
This combination creates buyer demand and delivers a higher-than-average propensity for growth in capital values.
The elements above are all present in abundance in the established prime locations in central London, including Knightsbridge,
Belgravia, Chelsea and Mayfair. But just as the landscape of London is constantly changing, the markets in distinct areas can also change, in some cases moving up into the prime bracket.
In 2007 we added the South Bank to prime central London as a raft of good quality stock, a lack of which had traditionally hampered this area next to the river, came to the market amid a programme of largescale regeneration.
Over the last few years there have been significant changes in the housing market in two other areas of London. The city and the surrounding areas of the city fringe have undergone fundamental alterations which we believe lift them above the threshold for prime central London.
As such, we are adding these areas to our Prime Central London (PCL) Index. The two locations may neighbour each other, but the housing market in each is quite distinct, with each becoming prime for different reasons, which we examine in this report.
The outlook for the wider prime central London housing market is positive. Prices have risen by 38% since the post-credit-crunch trough in March 2009, and we forecast further cumulative growth of 24% by the end of 2016. Prices have been boosted by activity among overseas buyers, who now account for 55% of purchases of properties worth £2 million or more.
London is, and will continue to be, the leading global city, burnishing its reputation as a safe haven, especially in the midst of the current turmoil in the eurozone and further afield. And while London will lead the UK’s economic recovery, independent forecasts suggest that within the Capital, the city of London, plus Islington and Tower Hamlets – two of the local authorities which the city fringe straddles – will be at the forefront of that economic bounceback. This is a solid underpinning for any local housing market. The city is at the heart of arguably the world’s most important financial district, and as such is always an attractive place to live for city workers. Around a quarter of homes in the city are second homes, used by workers as a base during the working week. But the Barbican, the largest existing residential area to the west of the Square Mile, is also popular with downsizers and younger families. Those with older children also like the area because of the proximity to top schools, including the city of London School and the city of London School for Girls.
The Guildhall School of Music and Drama and the Cass Business School are both within the Square Mile, while city of London University is just a short walk away. Education is a big draw for many overseas buyers and the proximity of these establishments, as well as the rise in the number of new-build top-end apartments coming onto the market in the coming years, is likely to further boost their interest in the city as an area in which to invest.
There is no doubt that demand for homes in the Square Mile far exceeds supply – and recent developments have not dented the shortfall of properties. Over the last four years just 408 private dwellings have been completed. The lack of very top-end property, largely due to the In terms of transport, Crossrail, which is due to open in 2019, will also have a large impact in the city. Those living close to the Barbican will have direct access to three airports, while the station at Liverpool Street will offer services to Bond Street or Canary Wharf in 7 minutes, making it much easier to travel across London from the city. The Eurostar terminal at St Pancras is also just a short trip away, making travel to mainland Europe fast and convenient.
city fringe
The half-mile fringe surrounding most of the city runs through three separate London boroughs and includes several disparate markets, from Clerkenwell and Farringdon in the west to Shoreditch and Whitechapel in the east.
Within this city fringe there are also spots where the prime tag does not apply, but this is also the case across many of our established prime central London areas.
The city and Shoreditch and the surrounding areas have become more prosperous over the last six years, with a significant uplift in the number of wealthy residents living there. This process of gentrification is usually a pre-cursor to an uplift in property prices as wealthier buyers bid up prices. The market in the eastern fringe is less advanced but we expect the spread of wealth to continue in years to come.
Overseas interest in property in the city fringe is likely to increase, especially in light of the new-build developments recently completed and in the pipeline, but the market will probably be more heavily skewed towards domestic buyers.
The lack of supply of housing in the city has always made the city fringe quite attractive, but traditionally this was manifested more to the West, in Clerkenwell and Farringdon, where buyers were drawn to spacious properties that were more reasonably priced than those in the city. This pushed up values in these areas during the nineties as the surrounding locality caught up, with new shops, bars and even a face-lift for Exmouth market.
Despite being more established markets, Clerkenwell and Farringdon have more room for growth in value. Our ‘hotspots report’ forecast that values for new developments in these areas would rise by around 50% over the next five years – significantly outperforming the forecast 24% uplift expected in prime central London prices over the same time period.
The picture to the east of the city was quite different at the turn of the century. Even five years ago, many city workers would not have considered living in Spitalfields or Shoreditch or further afield, despite the flourishing entrepreneurial hub that had emerged there. But gradually, the opportunities to buy spacious accommodation at prices that were significantly cheaper than the city despite being in very close proximity to the Square Mile, coupled with new retail and leisure facilities, such as the rejuvenated Spitalfields Market, have made the area a more attractive opportunity for wealthier individuals.
The recent completion of the East London line has also made the area more accessible, and the Crossrail station at Whitechapel will allow residents to get across town to Baker Street in just 12 minutes.
Local planners in Tower Hamlets and Hackney are also much more open to new residential developments than the city – and there are plans for some top-end developments, which should help boost the area’s profile, not to mention property values.
The emerging “Silicon Roundabout” on Old Street and along the city road is also creating another market among younger workers in the technology industry. This is expected to be one of the strongest areas of growth for UK PLC in the coming years.
Whereas San Francisco is a ‘dormitory town’ for many Silicon Valley workers in the US who want to live in the centre of a city,  entrepreneurs and tech workers in London can choose to work and live in one of the liveliest areas of the capital.
The area around the Old street roundabout is now host to hundreds of start-up tech companies, and the government has pledged to support this technology boom with the creation of the East London Tech city, which will run from the Old Street roundabout to the Olympic Park in Stratford. Many global companies have already pledged to invest in the technology hub, including Vodafone, Cisco Systems, Intel Corporation and Facebook. Google recently announced that it would provide office space and assistance to new technology companies in Bonhill Street in EC2 from next year.
Sentiment among developers is changing as they look to new ideas to take advantage of these opportunities and the evolving demands of tech occupiers. Developments with flexible uses incorporating offices, space for R&amp;D research and education, social amenities and retail outlets as well as residential units may well become a feature within the next five years.
Since 2001, prices across the whole of the city fringe have risen by 92%, lagging slightly behind the 101% growth seen in the existing prime central areas, but underlining that this is still an evolving market which we believe has more potential for growth.
Grainne Gilmore is head of UK residential research at <a target="_blank" href="https://www.knightfrank.com/">Knight Frank.</a>
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Grainne Gilmore

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