How A Perfect Storm Is Brewing To Push London’s Luxury Prices Higher Than They Have Been In Years. Will It Cross The Atlantic To New York?

Money, mayhem and market forces. All three are lining up in perfect proportion to make London’s real estate market pivot from several years in the doldrums to one that could set the pace for global urban property prices over the next decade.

“There’s a big advantage for a lot of heavy hitters to park money in London right now,” says Ido Berniker, founding member of the international real estate development firm Mercer Partners. Berniker, who represented billionaire Patrick Drahi’s recent $54.5 million purchase at 220 Central Park (Forbes estimates Drahi has a networth of $13.3 billion) as well as one of the nine-figure penthouse sales at the London’s marquee building at 1 Hyde Park, compares London to New York and says the slump in high-end luxury is going to rebound first in London and its climb will be sudden and swift. 

As just one example, last month’s $275 million sale of Rutland Gate—a 45-bedroom mansion in London’s Knightsbridge—was the highest-priced sale on record for the capital and many see it as a return to where London was about five years ago. “This brings London back to a different era and it will create an opening,” says Berniker. “You will see prices like at 1 Hyde Park come back very quickly.” (This is not the same home as what is being called the most expensive home in Britain, a private estate belonging to billionaire John Caudwell that just underwent a refurbishment at a cost of about $100 million to turn the house into a destination for his charity fundraising events. The elaborate remodel brought everything from over one thousand pieces of furniture to an indoor stream housing exotic African cichlids to the property. Forbes estimates Caudwell’s net worth at $2.4 billion).

Another building leading the pack is the Rafael Vinoly-designed building overlooking Hyde Park called “The Bryanston”. Vinoly, famous for buildings such as 432 Park in New York, created an 18-story building where a 24-story tower once stood so that each unit could have ceilings heights over nine feet as well as expansive 360 degree views over the whole of London. The 54-unit building has a duplex penthouse on the upper two floors for which prices have not been released, but real estate agent Peter Wetherell of the brokerage representing sales at the building confirms it will be a nine-figure asking price. Prices start at £2.6 million (roughly $3.9 million) for a one-bedroom. 

For the past four years one main factor that has held back buyers from purchasing a luxury property was the mayhem over Brexit and the corresponding weakness of pound. Now that there is more clarity over which direction Brexit is going, the currency is regaining its strength, and the pent-up demand that has been years in the making is attracting buyers from the sidelines while prices are still low. 

As Berniker says, “Now that uncertainty is off the table buyers and sellers can know for themselves what they think a property is worth. If you look at London the prices dropped so drastically and now banks are giving better interest so you can pull the trigger.”

Wetherell adds: “All the deals we’re doing, they aren’t new entrants to the market. They’ve been dancing around for the last few years.”

The pent-up demand and the greater certainty over Brexit are just the immediate forces in play that will push prices higher. The already-low amount of inventory for London is going to get even tighter thanks to multiple market forces over the longer term. 

“The people we have been doing deals with have a much longer horizon. They’re looking for a generational purchase,” Wetherell says. “They’ve either been people who have already been in the building and they’ve bought one for their son or their daughter or they’ve been in the area and they’re buying extra accommodation.”

Adding to the pressures on existing supply is a new set of planning laws going into effect this year that are going to make it very difficult for large-scale luxury homes to be built anytime during the next twenty years. Westminster Council, which oversees many of the jurisdictions where these high-end neighborhoods are located, has implemented the City Plan 2019-2040 which states new homes cannot exceed 2,152 square feet (200 square meters) and owners who want to merge adjoining homes to create a larger unit will be required to follow similar size restrictions. Also owners won’t be allowed to dig deep double basements under their property to add to the square footage. 

What exists today at the high end is what will exist two decades from now, with very little variation. 

“The people who are looking for trophies at the moment realize there aren’t many trophies around,” says Wetherell. “If you really want to buy you should buy when we’ve got the availability of stock. Which is now.”

As proof that the surge is already taking hold, look to properties such as Chelsea Barracks, a 13-acre plat that sold to Qatari Diar (the real estate investment arm of the Qatari Investment Authority) for $1.3 billion which saw over $58 million worth of sales happen in the fourth quarter of 2019. Or the forthcoming Mayfair Park Residences, where prices go up to $35 million for a four-bedroom. These are the first branded residences for the Dorchester Collections hotel brand and as their website shows included early marketing campaigns with actress Nicole Kidman as a brand ambassador. Then there’s Clarges Mayfair near the Ritz Hotel which is selling the last phase of its 34 flats this quarter. In 2019 they did about $340 million in sales (£225 million) ranging from $5,200 to $10,000 a square foot (£3,500-7,000), according to Wetherell. 

These are all multi-family buildings, but for single-family homes the agents are just as bullish. The current highest-priced listing in London is asking just shy of of $100 million for a 10-bed, 10-bath house near Primrose Hill. Another property in North London is beating local records by asking what would now be about $60 million for a home on two rare acres.

But what about New York? The two cities attract the same clientele and often these buyers want a home in both locations. But New York has seen properties at the top of the market take a dive and as appraiser Jonathan Miller told The Real Deal, the existing inventory could take six years to sell if the pace stays at what it is now. 

Whereas in London the entry level for luxury prices can easily reach $5,000 per square foot and twice that rate is not unheard of for the penthouse asset class, the same numbers no longer apply to New York. “If you told someone today to go and buy an apartment in New York for $10,000 per square foot, they’ll think you’re crazy,” says Berniker. 

“In 2016 the market was floating with cash,” says Berniker. “Now the market is not floating with cash anymore and in America it is very tight.” He recalls the heyday of 2016, specifically the marquee building at 220 Central Park, where nearly every buyer has been a billionaire (and it traffics in the same price range as 1 Hyde Park in London). But since that time the pied a terre tax has been implemented and all the units that came on the market hoping to catch the same tail winds as 220 Central Park have led to a surplus of inventory. Even the nearby tallest residential building in the world is seeing prices about 15% lower than 220 Central Park. 

If a perfect storm is forming in London, similar forces are pointing in a different direction in New York to create a nearly opposite impact. There is too much supply and there aren’t as many buyers waiting in the wings since many of them bought a few years ago.

“There’s too much inventory for that luxury and less foreign money,” says Berniker when it comes to New York. “But in London, you have 1 Hyde Park and after that only mansions. London will take two years or less to have a rebound of about 20 percent.”

   

This post first appeared on Forbes.com. To see the original, click here.