Kensington — Autumn 2022

Kensington has long set itself apart from other pockets of Prime Central London. The assortment of larger houses, often in some of the capital’s most sought-after squares, means that families from across the globe call the area home. Both buyers and tenants enjoy the collection of shops, excellent schools and links to the rest of London right on their doorstep. All of which helps explain why the W8 housing market has outperformed its Prime Central London neighbours' over the last few years.

Sales

Despite the heavy price tag, at anaverage of £5.1m, houses remainthe most desirable homes in W8.Last year, more houses were soldin Kensington than in any yearsince 2006 – a clear sign that thearea hasn’t lost its charm.

While Kensington hasn’t beenentirely immune from the urbanoutmigration trend, the amount ofequity that households here havebuilt up over the years means thatmany leavers can afford to retaina bolthole nearby. This hassupported flat prices a little morethan in other parts of centralLondon.

In fact, Kensington hasoutperformed most of its Prime Central London (PCL) neighboursin recent years. While pricesremain below their 2016 peak, theaverage home in W8 has risen12% since 2019 - triple the raterecorded in PCL and evenoutperforming Greater Londonaltogether.

Kensington has long drawn inbuyers from nearby Notting Hilland Knightsbridge who are lookingto put down roots in a familyhome. And no more so than in apost-Covid world where space,both indoors and outdoors, remainat the top of the priority list.

However, Kensington’s draw is asglobal as it is domestic. While themajority of overseas buyers are looking for a second home near theheart of London, a rising number ofyounger internationals are lookingfor a permanent home.

Buyers from Europe, particularlyFrance, Italy and Switzerland,account for nearly half of allinternational buyers in W8. Thosefrom South East Asia, the MiddleEast and North America follow. Theweak pound is likely to boost theirbuying power over the next year.

There are, however, risks on thehorizon for the housing market.Interest rate rises in the face ofdouble-digit inflation may start toput limits on how much buyers canafford and are prepared to pay.

However, the equity and wealth thatthe majority of buyers in W8 haveaccumulated over the years meanthat Kensington is likely to holdstrong in the face of any oncomingflux.

Lettings

It’s probably fair to say that, over the last few years, Kensington and Chelseais unlikely to have been the top of a buy-to-let investors wishlist. Back in2019, at an average gross yield of 4.0%, the borough offered the thirdweakest rental returns in the country, behind neighbouring Westminster andthe City of London.

But that’s not why investors havebought here. Typically, mostlandlords who own properties inKensington bought decades ago.Many either used to live in the area,or still do. There are also a numberof foreign based investors who havesought properties in one of WestLondon's prime postcodes as trophy assets.

While over their ownership they’vereaped the benefits of capitalgrowth, today they’re takingadvantage of record-breaking rentrises. And this is boosting returns,with the average gross yield in theborough rising to 4.9% this year. Thishas propelled Kensington and Chelsea up to the 297th highestyielding area out of 330 localauthorities in England and Wales,up from 327nd place in 2019.

Rental growth has been running atdouble-digit pace for the last 9months in Inner London as themarket recovered from its Covidlows.With around a third fewerhomes available to rent in W8 thanin 2019, rental growth has beenrunning hot here too.

While affordability barriers may putthe breaks on rental growth overthe next year, Kensington's globalappeal is likely to mean demandremains strong.