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The Current State of Prime London Yields: August 2024 Update

Thu 22 Aug 2024

Prime London yields have shown some improvement recently, though they remain significantly below long-term averages, reflecting ongoing challenges in the market.

Recent Performance and Market Dynamics

In the first half of 2024, prime central London (PCL) experienced some stabilisation, with slight improvements in property values after a prolonged period of decline. According to recent data, prime property prices in central London dropped by 3.9% in the first quarter but began to show resilience as the year progressed. This resilience is largely attributed to increased demand from domestic buyers and the perceived value of prime London properties relative to historical prices (Savills)​ (Home).

However, despite these signs of stabilisation, yields remain compressed. The ongoing high demand for "turn-key" properties—those ready to move into without further work—combined with limited supply, means that buyers are often paying close to or above asking prices, which impacts the potential for yield growth (Home).

Factors Influencing Yields

Several factors have influenced the current state of yields in prime London:

  1. Interest Rates and Economic Uncertainty: The fluctuation in mortgage rates and economic uncertainty, particularly around political changes such as the recent general election and potential changes to non-dom tax status, have kept many potential buyers cautious. This has contributed to a slow recovery in transaction volumes, which continues to impact yields (JLL Residential Properties)​ (Savills).
  2. Market Adjustments: While there has been a slight recovery in property values, particularly in outer prime London, yields are still far below their historical norms. This is partly due to the high capital values in these areas, which have not been matched by equivalent increases in rental income (Savills).
  3. Discounts and Negotiations: Buyers are increasingly negotiating significant discounts on properties, particularly in traditional prime areas like South Kensington, Chelsea, and Knightsbridge. This trend, while offering opportunities for buyers, puts further pressure on yields for sellers and landlords (Home).

Outlook for the Second Half of 2024

Looking ahead, the outlook for prime London yields remains cautious. While there is optimism that the market may strengthen as interest rates stabilise and political uncertainty diminishes, any significant recovery in yields is likely to be gradual. The market is expected to remain under pressure due to high property prices and the need for realistic pricing by sellers (Savills).

In summary, while prime London yields are showing signs of improvement, they are still far from their historical averages. Landlords and investors should remain cautious and keep a close eye on market developments as the year progresses.