In Wellington Court in Knightsbridge, London, you can rent a six-bedroom, 10,000-square-foot penthouse, with its own boxing gym, spa and roof terrace, located around the corner from Harrods and overlooking the Serpentine lake in Hyde Park. The catch? It costs £20,000 a week (US$27,000) to rent, and buying it isn’t an option.
Wellington Court is one of a growing number of super-prime properties being let for super-prime prices in central London, and more wealthy internationals than ever are willing to pay.
There are a growing number of new developments that cater only to tenants—rather than buyers—known as "build-to-rent." One example is Palace Wharf by Residential Land, a prime central London landlord specializing in providing luxury rental accommodations, launching this week. A former marble warehouse dating to 1907, it was restored into 16 rental apartments overlooking the river Thames a few doors from Ruth Rogers’s Michelin-starred restaurant River Cafe. Homes include restored steel Crittall windows, a Crestron automation system and Gaggenau integrated fittings and equipment. There’s an on-site building manager and in-house maintenance team, private and gated parking and building-wide CCTV. Prices start at £640 (US$874) a week for a one-bedroom apartment and climb as high as £1,500 (US$2,054) a week for a three-bedroom penthouse.
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There was a 19% rise in viewings of prime central London rental properties between January and November 2017 compared with the same period in 2016, according to the latest prime central London rental index by Knight Frank published in December. The number of tenancies agreed rose 14% in the first 11 months of 2017. The report analyzed the performance of single-unit rental properties priced between £500 (US$677) and £5,000-plus (US$6,773-plus) a week.
While average rents in the same area fell by 2.2% year-on-year in December, it was the most modest decline recorded in 21 months.
Average rental values for existing homes have been falling for more than two years as a result of rising supply, but the pattern is now reversing, said Knight Frank in its most recent report.
A large spike in new lettings properties in the middle of 2016 was one of the factors behind a slight decrease in rental values, as was a growing number of "accidental landlords," who have been waiting for more pricing certainty before returning to the sales market, opting to rent out their homes rather than sell them. Nevertheless, demand remained stronger in 2017 than in 2016, and experts believe that prices will rise in the long term as demand increases.
"From an investor perspective, in a world of low returns, the prime central London lettings market became a comparatively more attractive asset class in 2017," said Tom Bill, author of the report and head of London residential research for Knight Frank.
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Figures from LonRes, the property data company, tell a similar story.
It found the number of properties let in 2017 at £5,000 a week or more in London was up 25% compared with 2016. This spiked more in the last six months of 2017, when rentals were up 33% versus the same six month period in 2016. Of those properties let at this price, 58% were houses, and more than half of the total lettings in 2017 in this price bracket were in upscale neighborhoods like Kensington, South Kensington, Mayfair, Knightsbridge and Belgravia.
Peter Hermon-Taylor, managing director of Maskells, a Chelsea- based estate agency, expects this trend will continue into 2018 judging by the demand the agency has already experienced this early in the year.
He agreed that super-prime renters are choosing the same areas they would have previously bought in, citing Knightsbridge, Chelsea and Belgravia as very popular with "top-tier tenants" looking for a short-to-medium term home from one to five years.
These residents are motivated by two main factors: A significant increase in acquisition tax and negative price growth.
"A buyer of an £8 million (US$10.8 million) property who most likely already owns other homes will be paying an effective rate of 13.9% tax, that’s over £1 million (US$1.37 million) in tax and a significant barrier to entry," Mr. Hermon-Taylor said.
"The negative price growth we have been experiencing in prime central London since 2015 often confers upon a potential buyer a mindset that their property purchase might depreciate further," he said. "Let’s assume for the sake of this example it does fall by a further 10%, that’s £800,000. So this fictional buyer then decides to sell, he has potentially lost nearly £2 million on an initial £8 million. Now that may not happen, but that is a real risk present and that is, partly by design of the U.K. government, putting buyers off."
Instead of risking their capital, people are choosing to rent an equivalent property at the cost of about £200,000 (US$270,930) a year.
Catherine Cockcroft, head of lettings for Aylesford International, another estate agent in Chelsea, said that the impact of increased stamp duty in the U.K. means that in some instances two or three years’ rent can cover the tax that high net-worth individuals would have to pay to buy a similar size and standard of home.
The wealthy British used to consider renting odd, brought up with the assumption that one day everyone owns their own castle. On the other hand, many of the international buyers that contact the estate agency Strutt & Parker are, however, very used to renting, and as a result a number of specialist high-end agents based in the U.K. now have dedicated prime rental departments, and those renters will often approach the best agents to find the off the market or discretely marketed stock for their clients.
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Nina McDowall, head of lettings at the Knightsbridge and Belgravia office of Strutt & Parker, which is letting the Wellington Court penthouse, said the rental business is brisk.
"Clients enjoy the flexibility of renting, and do not need to concern themselves with the upkeep or maintenance of a London home. At the end of a tenancy, they may leave the country, or simply move to another exceptional London property.
"Many super prime market transactions occur off-market," she said. "Prospective tenants desire discretion and exclusivity, so many of the properties for over £10,000 per week will not be publicly advertised. Getting a glimpse of them is quite rare."
And many of these rentals, specifically but not limited to build-to-let housing options, also fulfill a desire wealthy individuals have: convenience. Those that travel frequently may rather have a fully serviced apartment with a porter giving peace of mind that their homes are secure and looked-after while they are away, as opposed to a large house.
And, Ms. McDowall added, even "for those renting houses rather than apartments there are some excellent concierge companies who can ensure the property is stocked with food, heating set and fresh linen on beds for their return." After all, renters are well cared for in London these days.