Prime central London’s sales market has just endured an annus horribilis. According to a recent report by Savills, prices dropped 6.9 per cent and it forecasts that they will flatline this year and next. But one property sector is booming. Data published by Knight Frank shows that the volume of prime London rentals is surging; while the number of sales of properties worth more than £10m fell by 17.8 per cent between January and September 2016 compared with the previous year, the number of prime rental deals went up almost a quarter over a similar period. Some of the world’s wealthiest men and women have become unlikely members of “generation rent” – not trapped in rented accommodation through lack of funds like would-be first-time buyers, but renting by choice, and on occasion paying as much as £2m per year to do so.
Estate agents report that in a volatile post-Brexit-vote, post-Trump-election market, a lot of those who need a London base don’t want to commit to buying a super-prime home. “Many prospective buyers are deciding to rent before purchasing, anticipating further price falls,” explains buying agent Camilla Dell, managing partner of Black Brick. While such speculating, combined with successive stamp duty reforms over the past two years, has depressed the sales market, it has only stimulated the surge in top-end rentals. “Stamp duty on a £10m-plus property is chargeable at a sum in excess of 11 per cent of the eventual purchase price,” points out Richard Bryce, a member of the lettings team at Aston Chase. “The cost of the stamp duty alone could fund the rental of a super-prime property for a significant period.”
For £86,667 per month (long-let price), for example, renters could live in one of London’s most architecturally splendid streets: the Grade I-listed Hanover Terrace in Regent’s Park, built by John Nash in 1822. The property is thought to have last been on the market in 2013, for £34m, and is now available to rent through Savills St John’s Wood. Its future tenants will get a magnificent 520sq m home with five bedrooms and four to five reception rooms, plus the security of being on a private road, where the artist Damien Hirst also lives.
Super-prime generation rent is a cosmopolitan crew, made up of everyone from hedgefund managers on assignment to pop stars on tour; diplomats and their staff to extended families who want a London base for social and shopping visits. In recent years Olivia McSweeney, head of London lettings at UK Sotheby’s International Realty, has mostly found herself dealing with North American renters. Before McSweeney came to Sotheby’s, one of her clients, who works for a London hedgefund, rented a £9,500-per-week family house in Holland Park. That was four years ago and the family is still in situ – meaning they have so far spent just shy of £2m on rent.
McSweeney says most of her big-budget clients like the adaptability of renting – it is less expensive and more intimate than renting a hotel suite for occasional visits, and more flexible than buying. Some are looking for a temporary home while they search for a house to buy or they renovate a property they have already bought. Some are students who will be in London for a few years and whose parents want to save them from student digs. And others just want to keep their lives simple. “Most people at this level have houses in different parts of the world and may not want to buy another one,” says Catherine Cockcroft, director and head of lettings at Aylesford International.
What most of these super-prime London renters want is a good address and excellent entertaining space. Knight Frank in Canary Wharf has a three-bedroom apartment (£1,500 per week) in The Landmark East Tower, Marsh Wall, that meets those criteria, with a 9m x 5.9m open-plan living room and some seriously spectacular views.
Likewise, the streets between the Strand and the River Thames are becoming increasingly popular with young professionals who work in the City but want to be within walking distance of the West End. Savills Mayfair has a three-bedroom, three-bathroom flat on Essex Street (£1,800 per week) with a sleek boutique-hotel vibe: white-gloss kitchen, oversized artwork in the monochrome living room and vaguely midcentury styling.
At the other end of the super-prime rental chain are landlords. Traditionally these have been professionals or institutional investors who are now creating increasingly high-standard “built to let” properties. But the slow and difficult sales market of the past 24 to 36 months has meant that these experts have been joined by accidental, amateur landlords who haven’t been able to sell their primary residencies. “Rentals can be an effective way for super-prime property owners to ride out the current storm,” says Tim Hassell, managing director of Draker Lettings.
Turning a family home into a super-prime or prime rental, however, is not as simple as decluttering and then registering with an agent. The requirements of top-end renters can be just as exacting as those of buyers – if not more so – because they will not expect to have to spend any time or money revamping a rental property to meet their needs. “A tenant is looking for perfection in their price range, whereas a buyer is looking to be able to add value,” says Lawrence Brown, area director of Chestertons.
Joshua Cantor-Fuller, former head of lettings at Quintessentially Estates, estimates that in order to turn a “lived-in” two-bedroom flat into prime rental material a full refurbishment is required. “How much should you budget? To be on the safe side, I would say about £20,000 for a two-bedroom flat – if you cut corners, people will notice,” he says. And, of course, every time you change tenants you will need to refresh the property. “Buyers tend to look more for space and layout as a priority, with the decor seen as something that can be – and often is – changed,” says Draker Lettings’ Hassell. “Renters will pay much more attention to furniture and fixtures and fittings, and, in unfurnished properties, to paint finishes, flooring and appliances. It is also not uncommon for a landlord to redecorate a property to a renter’s specification.” One of the most glamorous rentals currently available in London is a prime example of such attention to decorative detail: a 680sq m seven-bedroom penthouse on Park Lane (£25,000 per week through Knight Frank in Mayfair), designed by Nicky Haslam and has the look of a discreet but quirky boutique hotel. Increasingly, says Hassell, prime rentals come with basic staff, such as cleaners, and are fully furnished and interior designed. “Renters appreciate a complete solution that they can just move into.”
In South Kensington, Lurot Brand has a four-bedroom house (£3,950 per week) on Queen’s Gate Place Mews. The property has had a complete boutique-hotel-style revamp and is an immaculate symphony of taupe and off-white, with marble bathrooms. Although the house is being let unfurnished, it has been fully styled for its brochure, the beds decorated with mountains of perfectly plumped cushions and the kitchen table laid.
Prime tenants rent their properties for, on average, between 12 and 33 months, and are often asked to pay large lump sums at the outset for the best of them. “Overseas tenants with no track record or previous landlord references often have to pay the entire rental term of tens of thousands of pounds upfront,” says Black Brick’s Dell. Students will pay an advance of between six and 12 months’ rent, says Lucy Morton, lead director of the residential agency at JLL, while “professional individuals pay lump sums for simplicity. A tenant recently paid a year upfront on a £7,000 per week tenancy, as they didn’t want the hassle of paying on a monthly basis.” This may sound excessive, but even renters willing deal with the (admittedly minor) inconvenience of setting up a direct debit could face an initial outlay running into six figures for the most expensive properties: Foxtons is offering a six-bedroom penthouse in a mansion block in Knightsbridge, and the tenant will have to hand over a £120,000 deposit – six weeks’ rent.
While these advances are considerable, they are actually less substantial than they were a year or two ago. Although the volume of prime rentals has increased, prime rents are slowing in cities around the world; according to Knight Frank’s November 2016 rental index report, the prime-rent market fell 5.2 per cent in central London in the year to date, which the agency attributes to a general lack of economic confidence, plus the increase in stock attributable to the flood of accidental landlords joining the sector. Most agents also report a drop in the number of high-level corporate lets in London as companies tighten belts and – perhaps – begin to look towards other European cities in the wake of the UK’s decision to exit the European Union.
For those who do wish to rent in prime central London, spring is a particularly busy time, with aides employed by families based in the Middle East arriving in search of summer rentals for their employers. Some of these families might only be in London for a few weeks, but regularly take on year-long tenancies to secure the very best properties. The summer holidays are similarly busy because families are keen to settle into their new homes in time for the school year, as are students who want a home in time for freshers’ week.
“I don’t think the sales market is going to bounce back any time soon,” says Max Chaudry, lettings director at Winkworth in Knightsbridge & Chelsea, who believes that in the year to come prime rentals will go from strength to strength. “People don’t want to change their lifestyle, but nor do they want to buy – so there is going to be a growing shift towards prime renting as a result.”