VAUXHALL 2015

RESEARCH

CHANGING SUPPLY AND DEMAND

UNRIVALLED CONNECTIVITY

THE REGENERATION STORY

FIGURE 2

Greater London pipeline

FORECAST

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000

2005 2009 2011 20132007 20172015 2019 2021 2023

AFFORDABLEPRIVATE

Private demand

Total demand

AVERAGE ANNUAL FORECAST SUPPLY

SU

PP

LYD

EM

AN

D

Source: Knight Frank Residential Research /Molior London / DCLG

MARKET OVERVIEWVauxhall is the best-connected area of Nine Elms, a 195-hectare riverside district that is the largest regeneration site in central London.

Vauxhall’s status as one of central London’s best-connected areas means it is well-placed to benefit from renewed buyer focus on infrastructure and location

A lower proportion of £2 million-plus properties compared to traditional prime markets reduces short-term political risk

It has a pivotal position in the Nine Elms masterplan, acting as the gateway between central London’s largest regeneration scheme and prime central London

There is upwards pressure on prices as a result of strong demand for locations on the fringe of prime central London

Price growth of 95% in Vauxhall since 2009 compares to 74% in prime central London and 25% in the UK

KEY FINDINGS

2

95

105

115

125

135

145

155

165

175

185

195

205

2009 2010 2011 2012 2013 2014

VAUXHALL

RIVERSIDE

PCL

UK

(Rebased to 100)

Source: Land Registry / Knight Frank Residential Research

FIGURE 1

Vauxhall outperformance

Vauxhall is uniquely well-positioned to take advantage of recent changes in the prime London property market.

The market has evolved since the immediate aftermath of the financial crisis, when strong price growth in central London was driven by buyers looking for a safe investment against the backdrop of instability in global financial markets.

The return of the ‘ripple effect’ in 2013 saw price growth emanate outwards from central London as the UK economy improved and the safe haven impetus diminished. Due to such strong growth in core prime central London markets like Kensington and Knightsbridge, buyers have increasingly sought more square feet for their money further out, with many crossing south of the River Thames for the first time.

The result is a London property market that increasingly operates in accordance with underlying economic fundamentals. For buyers, it means a renewed emphasis on investment fundamentals such as location, infrastructure and regeneration potential.

Vauxhall is the key infrastructure hub within Nine Elms, central London’s biggest regeneration scheme that includes the iconic Battersea Power Station development. This makes it exceptionally well-positioned to capitalise on this trend.

However, as the economic backdrop normalises and conditions become calmer, short-term political risk has started to weigh on the London market. Depending on the result, further property taxation could follow the general election on 7 May, which has led to slowing annual price growth in prime central London.

Vauxhall, however, is better-positioned than many other prime central London markets given its lower share of £2 million-plus properties, the level at which a putative ‘mansion tax’ would start.

Annual growth in prime central London for properties worth between £5 million and £10 million was 2.7% in the year to January 2015 as the prospect of the ‘mansion tax’ dampened demand. However, for properties valued between £1 million and £2 million, growth was 7.6%, demonstrating how markets like Vauxhall have remained more buoyant

3

FIGURE 3

Central London supply Consented residential development pipeline in Zone 1

Source: MOLIOR

due to less uncertainty surrounding the potential for property taxation.

Prices in Vauxhall have almost doubled in the past five years, as figure 1 shows. Growth of 95% between January 2009 and Q3 2014 exceeds 74% in prime central London and 25% in the UK between 2009 and the end of 2014. A property bought for £750,000 in Vauxhall in January 2009 was worth £1.46 million at the end of last year.

The strength of the market in this area of London is also underpinned by its riverside location, which remains a key selling point in London. The South Bank index, which covers an adjacent area spanning Westminster Bridge to Tower Bridge, grew 8.7% in the year to January compared to an average of 4.6% in prime central London.

The whole swathe of the south bank of the River Thames from Tower Bridge to Battersea is popular with domestic and overseas buyers. It is popular with the latter due to its greater predominance

of higher-rise living that is common in other global markets like New York and Hong Kong.

The wider transformationSpanning the London boroughs of Wandsworth and Lambeth, Nine Elms includes more than 20 inter-connected developments that stretch from Lambeth Bridge in the east to Chelsea Bridge in the west.

It is one of several large-scale regeneration projects in central London but its prime riverside location, transport potential and ambitious scale and vision mark it out from other schemes.

Nine Elms is forecast to provide 25,000 new jobs and 16,000 new homes for 30,000 new residents, playing its part in an attempt by local authorities to address the supply/demand imbalance of housing in London (see figure 2).

Alongside the existing 10,000 households, the area will also benefit from new public realm works and the transformation of brownfield sites into parks and gardens, including the Linear Park, a continuous stretch of green that runs from Battersea to Vauxhall.

There will be high-quality retail and leisure sites as areas like New Covent Garden Market and Battersea Power Station are re-developed, as well as other cultural attractions, community facilities and more than half a million square metres of new business space, as a new London residential neighbourhood is created.

The area will also include a new diplomatic quarter, with the opening of the new United States embassy in 2017 to be followed by other countries including Holland.

Furthermore, Vauxhall will be dramatically remodelled to re-establish a pedestrian-friendly town centre with improved public spaces, more green areas and enhanced transport infrastructure.

More than £1 billion will be spent on improving the infrastructure in Nine Elms and the Northern Line Extension will create two new stations at Wandsworth Road and Battersea Power Station. They could open in 2019 and provide a direct link to Westminster and The City in eight and twelve minutes, respectively.

The plan also includes two riverbus piers, new bus routes, an extension of the city’s cycle hire scheme and a new pedestrian and cycle bridge across the Thames to Westminster.

Given Vauxhall’s position at the eastern tip of the area, a short walk across the Thames from the Houses of Parliament and Big Ben, it will occupy a privileged position as the gateway between this transformed Nine Elms district and central London.

Supply and demandHousing supply in London is unlikely to exceed demand in the medium-term.

The UK government estimates that more than 100,000 people will come to London every year for the next decade and the fact demand will outstrip supply is a key reason we forecast cumulative growth of 22.1% in prime central London between 2015 and 2019.

RESIDENTIAL RESEARCHVAUXHALL 2015

4

There is annual demand for approximately 38,000 private sector residential units in Greater London in the decade to 2023, however the construction and planning pipeline looks able to provide less than 20,000 private residential units per year, as figure 2 shows.

This imbalance is as marked in prime central London, a situation exacerbated by a shortage of space for developments of scale. We estimate there is annual demand for approximately 4,200 private sector residential units in prime central London over the next decade though the construction and planning pipeline is less than 2,000 units per year.

In similar fashion to other areas, Nine Elms has a higher supply than more central

FIGURE 4 Access to the City, West End and Midtown Sample of morning rush-hour Underground journeys from Vauxhall Station

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2.3.

4.5.6.

7.

8.

10.

9.1.

Vauxhall

London underground stationsserving Vauxhall commuters

5% sampled morning journeysJourneys Time taken

<250250 - 500

500 - 1,000

1,000 - 2,000

2,000+

Victoria Line

< 10 mins

< 20 mins

< 30 mins

< 40 mins

< 1 hour

BY COMMUTER NUMBERS

1. Liverpool Street2. Holborn3. Bond Street4. Chancery Lane5. Farringdon6. Baker Street7. South Kensington8. Westminster9. Paddington10. Embankment

Source: Transport for London

London areas, where development is limited by space and planning constraints. However, an accompanying increase in demand is likely with a transformative regeneration project of this type. In the case of Vauxhall, it will boost already-strong demand based on its connectivity, proximity to central London and prime riverside location.

Figure 3, which illustrates the locations of the consented residential developments within the zone 1 central travel area, shows the Nine Elms project is part of a wider trend.

As the map shows, a large proportion of the future supply pipeline is concentrated across several schemes including Nine Elms, Earl’s Court, Kings Cross, Elephant

© OpenStreetMap (and) contributors, CC-BY-SA

© OpenStreetMap (and) contributors, CC-BY-SA

FIGURE 5 Two-bedroom properties in the London Boroughs of Wandsworth, Lambeth and Southwark

SALES ASKING RENTS

£3.2m

£350,000

£100,000

£9,000 pcm

£1,700 pcm

£350 pcm

VAUXHALLVAUXHALL

& Castle, Paddington, Aldgate and the City Road corridor.

What they all have in common is their location on the periphery of zone 1, meaning they will benefit from a trend among buyers to look for better value in less central locations that have become less affordable after strong price growth during the financial crisis.

As buyers look further afield, they are less influenced by the postcode and more influenced by the quality of the property and amenities. Given the location of Vauxhall on the periphery of zone 1, it will benefit from this trend as high-quality, well-serviced developments are developed.

This effect is demonstrated in figure 5, which highlights the premium buyers and tenants attach to a riverside setting and underlines the buoyancy of the Vauxhall market compared to adjacent areas. The maps show the distribution of average sale prices and asking rents for 2 bed apartments across south London.

Though international demand is strong in Vauxhall, figure 7 illustrates the importance of the domestic market. It shows that in the wider Riverside market, between Tower Bridge and Battersea Bridge, British buyers represented 62% of sales in 2013 and 2014.

Whilst Russian and Chinese nationals were also important, 8 out of 10 buyers over this period were resident in the UK, demonstrating the resilience and appeal of this market to UK-based buyers. The wide spread of buyers of other nationalities shows, in similar fashion to the rest of prime central London, overseas demand is not over-reliant on one part of the world.

Source: Knight Frank Residential Research

RESIDENTIAL RESEARCHVAUXHALL 2015

5

FIGURE 6

Public transport accessibility levels

High

Low

ConnectivityRiverside areas have always been popular locations, however many established neighbourhoods like Fulham, Wandsworth, Putney, Chiswick are less well-served by public transport than Vauxhall.

Vauxhall benefits from quick access to West End and the City.

The Transport for London PTAL scoring system measures the distance to the nearest public transport stop and service frequency. Vauxhall scores the highest possible PTAL rating (6b), as figure 6 shows, which is the result of having the second busiest bus station in London, a tube station two stops from London Victoria and a frequent over-ground train service into London Waterloo.

Figure 4 shows the most common destinations for commuters entering Vauxhall tube station, using sample Oyster card data from Transport for London. Liverpool Street, Holborn and Bond Street are the top three destinations, with more than

Source: Knight Frank Residential Research

FIGURE 7

Riverside diversity Nationalities of buyers through Knight Frank Riverside, 2013 & 2014

UKRUSSIACHINAITALYSAUDI ARABIAUS

NIGERIASLOVENIAEGYPTIRELANDOTHERS

Source: TfL

VAUXHALL

BATTERSEA PARK

VICTORIASTATION

2,000 commuters sampled travelling to those stations from Vauxhall each morning, demonstrating its accessibility to the West End, Midtown and City districts.

It also shows that using just the tube network in rush-hour, the whole of the West End and City are accessible within 30 minutes from Vauxhall.

ConclusionVauxhall’s location at the heart of central London’s largest regeneration project means it is well-placed to capitalise on several emerging trends within the prime London property market. After several years in which ‘safe haven’ capital drove the prime central London market, buyers are now seeking better value in districts on the fringe. Few of these areas are better-connected than Vauxhall, making it well-positioned to take advantage of the fact infrastructure will play an increasingly prominent role as price growth in the London property market becomes more closely linked to the underlying UK economic recovery.

© Knight Frank LLP 2015This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank LLP for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank LLP in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank LLP to the form and content within which it appears. Knight Frank LLP is a limited liability partnership registered in England with registered number OC305934. Our registered office is 55 Baker Street, London, W1U 8AN, where you may look at a list of members’ names.

Knight Frank Residential Research provides strategic advice, consultancy services and forecasting to a wide range of clients worldwide including developers, investors, funding organisations, corporate institutions and the public sector. All our clients recognise the need for expert independent advice customised to their specific needs.

For the latest news, views and analysison the world of prime property, visit

KnightFrankblog.com/global-briefing

GLOBAL BRIEFING

RESIDENTIAL RESEARCH

Tom Bill Head of London Residential Research +44 20 7861 1492 tom.bill@knightfrank.com

Sebastian Verity Associate, Residential Research +44 20 7861 1305 sebastian.verity@knightfrank.com

LONDON RESIDENTIAL

Rupert Dawes Head of New Homes +44 20 7861 5445 rupert.dawes@knightfrank.com

Tim Hyatt Head of Residential Lettings +44 20 7861 5044 tim.hyatt@knightfrank.com

Charles Dugdale Partner, London Residential Development +44 20 7861 5411 charles.dugdale@knightfrank.com

RESIDENTIAL RESEARCH

LONDON’S GROWING POPULATION

MEASURING THE HOUSING SUPPLY GAP

HOUSING DELIVERY BY BOROUGH

BRIDGING THE GAPLONDON RESIDENTIAL DEVELOPMENT 2014

London Development Report 2014

The Wealth Report 2014

Prices declined marginally for the third consecutive month in January, as the UK general election approached and ambiguity continued to surround the prospect of further property taxation.

A decline of -0.1% meant annual growth eased to 4.6%, the lowest rate in more than five years.

The prime central London market is operating in an increasingly febrile political environment, where the debate surrounding the merits of a ‘mansion tax’ frequently takes centre-stage.

In addition to internal divisions within the Labour Party over the feasibility of the tax, further uncertainty surrounds its possible implementation because the likely outcome of the election will be coalition government.

With inconclusive polls and an unprecedented range of smaller parties competing for a share of power, the sort of uncertainty that historically dampens activity in the run-up to a general election has reached new heights in 2015.

Compounding the uncertainty in prime central London is a lack of detail surrounding any proposals beyond the fact the Labour Party

would set the tax at £3,000 per year for properties valued between £2 million and £3 million.

The result is that some buyers and sellers are delaying decisions until greater clarity emerges. This is compounding the traditional seasonal low in transaction volumes.

Monthly growth remains positive for properties below £2 million and annual growth was 7.6% for properties worth between £1 million and £2 million in January. The figure is down from 12% this time last year and transaction levels remain healthy, particularly where vendor expectations have moderated.

The strongest annual growth was away from the more established prime markets, with Hyde Park Estate, Islington and the City & Fringe all recording growth in excess of 9%. Prices fell 1.4% in Kensington after strong growth in recent years in what is more of a house market than a flat market compared to areas like Knightsbridge and Mayfair.

JANUARY 2015Prices declined -0.1% in January, the third consecutive monthly fall

Annual growth eased to 4.6%, the lowest rate in five years

Uncertainty surrounding the general election has caused some buyers and sellers to delay acting

Annual growth was 7.6% in the £1 million to £2 million price band

Hyde Park Estate, Islington and the City & Fringe recorded growth in excess of 9%

TOM BILL Head of London Residential Research

“The sort of uncertainty that historically dampens activity in the run-up to a general election has reached new heights in 2015.” Follow Tom at @TomBill_KF

For the latest news, views and analysis on the world of prime property, visit Global Briefing or @kfglobalbrief

PRICES IN PRIME CENTRAL LONDON SOFTEN AS ELECTION COUNTDOWN BEGINSUncertainty over the outcome of the general election is rising alongside the political rhetoric surrounding property taxation, says Tom Bill

RESIDENTIAL RESEARCH

PRIME CENTRALLONDON SALES INDEX

FIGURE 1 The decline in annual growth

Source: Knight Frank Residential Research Source: Knight Frank Residential Research

FIGURE 2 Annual price growth by price band and property type

Jan-

14

Feb-

14

Mar

-14

Apr-1

4

May

-14

Jun-

14

Jul-1

4

Aug-

14

Sep-

14

Oct

-14

Nov-

14

Dec-

14

Jan-

15

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

-0.2%

-0.1%

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

0.6%

0.7%

0.8% Monthly growth Annual growth

£1m to £2m

£2m to £5m

£5m to £10m

Over£10m

Flat House

7.6%

4.2%

2.7%

1%

5.5%

3%

Prime London Sales Index January 2015

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FIGURE 8

The Nine Elms regeneration plan For more information please contact:

Henry Faun MRICS

henry.faun@knightfrank.com

+971 56110 2407