Luxury rentals have boomed in central London this year despite, and perhaps because of, the cooling in the city’s prime residential market since Brexit and the introduction of higher stamp duty on second homes in mid-2016.
During the first four months of 2017, 42 super-prime London rentals found tenants, a 27% increase from the same period last year, according to a report Wednesday from London-based property consultancy Knight Frank based on data from LonRes. Knight Frank defines super-prime as lettings priced at £5,000 (US$6,444) per week or more.
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In the year through April, there were 122 super-prime tenancies agreed to, roughly the same as the year before, according to the report.
Meanwhile, demand has soared at the highest echelons of the super-prime market. In the first quarter of 2017, 30 tenancies were agreed to at £10,000 (US$12,889) or more per week, compared to only 20 such blockbuster rentals in the same period the year before.
There are only a handful of neighborhoods with lettings prices above £10,000. They include the edge of Hyde Park, blocks in Kensington around Holland Park, and two areas in Chelsea. Knightsbridge and Kensington have logged the most super-prime lettings in the year to April.
London’s luxury brokerages have noted the uptick in high-end rentals in response to political changes and increased stamp duty, or a tax on home purchases, as would-be buyers turned to rentals while waiting for more economic and political certainty.
"At this price point, there are tenants who are able to rent in the short-term and buy when they sense that a greater degree of stability has returned," said Tom Smith, Knight Frank’s head of super prime lettings.
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The U.K. phased in a stamp duty hike in 2014 and then increased it again in 2016, specifically for second homes. The U.K. now imposes a graduated tax that charges 12% on the purchase price over £1.5 million (US$1.93 million). For second homes, the tax is 15% on the purchase price over £1.5 million.
From the stamp duty changes in December 2014 through the following two years, there were 231 super-prime letting deals—marking a 9.5% increase over the prior years.
Super-prime transactions would be even higher if not for limited stock, Mr. Smith said in the report.
While it’s not a problem for wealthy individuals or families eyeing large spaces in the posh outskirts of London, "large lateral space in prime central London is at somewhat of a premium," Mr. Smith said.