What constitutes ‘prime’ is in constant state of flux. Different locations and property types within Prime Central London respond very differently to market drivers, which ultimately results in the emergence of many different grades of property.

New, detailed analysis of the individual performance of each property in the Savills Prime Central London index enables us to reveal the extent of the divergence in performance between the different locations and different grades of property in the capital.

One manifestation of this has been the outperformance by the top end of the market. In the six years to June 2011, the value of ultra-prime properties in the Savills index rose by 107%, against an average 87% growth across Prime Central London as a whole.

Beyond the averages

Headline growth figures provide a guide to the average, but our new analysis reveals the full extent of the variation around that average. By dividing our index into ten equal parts according to price growth, we can see the divergence between the best and the rest, analysis that highlights the importance of looking beyond the average.

Between June 2005 and June 2011 the top 10% of properties delivered price growth of 151%. At the other end of the scale, the bottom decile produced less than a third of this aggregate growth,
at just 42%.

The growth recorded by the top and bottom deciles varies considerably from the rest of the sample – they could be considered extremes compared to the rest of the sample, where growth is more closely grouped. But the significant variation in performance is not confined to very best and very worst. Growth of the second best performing 10% of properties is still twice that of the second worst performing 10%, at 119% compared to 60%.

When and why

A study of price growth in three key periods reveals how that divergence has built up:

1 Pre crunch: Jun 05 - Sep 07

Much of the divergence in price growth performance occurred during the initial period of dramatic price growth. The profile of demand dramatically changed, and the market responded rapidly and segregated to the greatest degree. Prices rose by a third in the bottom decile but doubled in the top decile.

2 Market crash: Sep 07 - Mar 09

The subsequent period of price falls produced much lower levels of variance, ranging from 24% falls among some of the worst performers to 18% falls in the segments that had performed best prior to the downturn. No location or property type was immune to falls.

3 Recovery: Mar 09 - Jun 11

Since March 2009 performance has varied much less, though there has been identifiable renewed outperformance in the top 30% of the sample. The rebound has been driven by overseas demand and properties fitting the profile of that demand have led the way.

Looking forward, a combination of global economic and social factors will determine whether we are entering a period of lower growth or renewed volatility. Whichever, a continuation of the significant growth seen in the past 18 months seems unlikely in the short term.

Taken from:
Spotlight: Prime Central London Residential, 2005 to 2011