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MARKET CONDITIONS

I. Market Conditions - 31st December 2007


In the last quarter, fallout from the credit crunch has impacted the housing market as well as the general economy. Usually interest rates are dominant in forecasting price growth or slippage, but this is now replaced by liquidity, more stringent mortgage lending and concerns for the economy as a whole. Price growth for Prime Central London (PCL) fell to 0.1% in November, the lowest since Jan 2005. Over the last 3 months prices in PCL have increased by 1.6% compared to 3% per month during the summer. It should be borne in mind that, notwithstanding the above London prices continue to increase, Knight Frank are predicting a growth rate of 3% in 2008. In the opinion of Savills there is still a lack of the very best property to satisfy demand and the prospects for PCL seem safe whilst global capital still seeks London real estate as a home. The South West London micro market, we are concerned with in WREP, saw a fall in quarterly growth from 8.1% in the 2nd quarter ´07 to 2.4% in the 3rd. Buyers in South West London are particularly reliant on bonus funding and so are affected by any weakness in the city. However, Savills reports that as per PCL, good family houses are endemically in short supply, which will support values. In PCL, houses are outperforming flats with annual growth in the 3rd quarter standing at 38.9% and 20.4% respectively. The out performance has been particularly significant during 2007. In summary; although the outlook is less certain than in previous reports, judging by the evidence, it is by no means a severe weather warning. A reduction in bank base rates will help underpin the expectation for sustainable, although unexciting property price inflation during 2008 in Barnes.

Prime Central London (Residential) - Q3 of 2007

Research from Knight Frank indicates that prices in Central London have risen 33% year-over-year:

  • Growth driven by increasing demand from overseas buyers
  • Price growth is strongest for premium properties
  • Homes prices over £4 million rose by 11.4% in the first quarter of 2007
  • Homes priced under £1 million rose by 6.2% in the first quarter of 2007
  • Demand continues to increase in key Waterford areas such as Barnes and Camden, which have seen appreciation of approximately 5% in the last previous 3 months


Savills reported levels of growth in prime central London at a rate of approximately 8.8% over the first quarter of 2007, the highest quarterly growth in over 7 years.

  • In the same quarter, annual growth in properties valued in excess of £5 million is estimated at 50%
  • Savills is forecasting growth rates to continue in Prime Central London at approximately 20%
  • Housing continued to outpace flats in terms of annual growth in the first quarter of 2007 increasing 39.6% versus 19.8% respectively


Prime London (Residential Development & Lets) - Q3 of 2007

Research from Savills indicates that greenfield land values have risen sharply in the last calendar year:

  • Growth in greenfield land values over Q4 2006 and over the calendar year 2006 surpassed expectations, totalling 6.1%
  • Greenfield scarcity is considered to be the primary driver
  • Savills expects greenfield land values to grow into and beyond 2007 at a rate of 8.0% with an upturn in values in excess of 1.0%
  • Research from the same source suggests that the top end of the rental market is leading the with an annual growth rate of 13% for houses and 12% for flats by the end of the first quarter of 2007:
  • General consensus dictates that the continued shortage of rental inventory will support persistent rental values
  • Savills forecasts this rate to be approximately 10% in calendar year 2007


Central London (Office Space) - Q3 of 2007

Research from Savills reports that take-up office space in 2006 was the second highest in 15 years:

  • 6,600,000 square feet of space was leased
  • Rents continued to increase, topping out at approximately £62.50 per square foot
  • Average Grade A space rent increased from £36.37 per square foot in the first quarter of 2005 to £44.80 per square foot in the fourth quarter of 2006
  • Vacancy rates fell from 8.1% to 5.7% over the course of 2006
  • Savills expects to see further declines in vacancy throughout the city which will drive upward growth on Grade A space n both core and fringe sub-markets