Once described as a “village of palaces”, Chelsea is one of the most desirable neighbourhoods in London. The area is home to a collection of Victorian and Georgian terraces, which boast generous proportions and attract premiums not seen elsewhere in the country. Its close proximity to the river, world-class shops, restaurants and picturesque parks lure buyers from around the world. This broad appeal has also caught the eye of investors, particularly into redevelopment schemes such as Chelsea Barracks and Chelsea Creek.
Over the long-term, house prices in Chelsea have outperformed much of the capital and beyond. At an average price of £1.3m, prices in the borough have risen 187% over the last twenty years, outperforming Greater London and Great Britain. However, most of this growth occurred before 2014. Since then, prices in Prime Central London have plateaued. Much of this stagnation can be traced back to the property cycle, however higher stamp duty costs for domestic and overseas buyers alongside a shift in migratory patterns away from London since the Covid pandemic have weighed on price growth in more recent years.
Larger homes have performed best, with the average price of a semi-detached house rising 22% since 2019. Flats, on the other hand, have only seen a 3.7% increase over the same period. Although, with higher rates reducing mortgaged buyer budgets, the price gap between flats and houses is showing signs of narrowing.
Like much of Inner London, rents have recorded record breaking growth. Newly let properties in Inner London have seen rents rise at double-digit pace for all but one of the past 18 months. The average rent in Chelsea surpassed the £4k mark for the first time this year, marking an 11.1% increase from the previous year. This translates to an additional £643pcm or 18% increase compared to 2019. Typically, larger homes have experienced the strongest rental growth.
The good news for investors is that soaring rents and stagnant house prices have boosted yields. The average gross yield (before costs and tax) in Kensington and Chelsea rose to 5.2% in 2023, up from 4.7% last year. Like many other pricey parts of the country, rental returns haven’t been the strongest. Rather, investors have been more reliant on longer-term capital growth to make their returns.
Despite a number of uncertainties in the housing market over the coming years, we’re projecting rents to continue rising faster than house prices, which is positive news for investors. Factors that could dampen house price growth are likely to stimulate rents due to a lack of supply and increased demand from would-be buyers.
Looking longer-term, it seems we’re nearing the end of the current property cycle, which began in 2009. If history serves as a guide, as a new cycle begins, London’s price growth will likely outpace the rest of the UK. And Prime Central London postcodes, like Chelsea, are likely to lead that recovery.
