The resilience of London’s luxury real estate market

Last month, we launched our inaugural Luxury Real Estate 2024 report, homing in on the general outperformance of the luxury market across Europe. Largely driven by the increase in global wealth and the rebound of post-pandemic travel, the report looks at the resilience of Europe’s key luxury markets. But we’ve decided to look a little closer to home and have pulled out some of the key UK findings on the retail, hotels, and living sectors.

We’ve all heard that London’s luxury retail scene has been the beneficiary of significant rental growth that is now exceeding that of the mass market, and at impressive rates. The prime rents currently achieved on New Bond Street, arguably the city’s most prestigious stretch, is approximately triple that seen in 2010, and on Sloane Street it is over double. This is compared to the likes of mass market retail streets, such as Oxford Street and Regent Street, where prime rents have also increased, but at more modest rates of 12% and 50%, respectively.

This rental growth, paired with stronger yield movement, has made prime retail assets an appealing investment for many. In fact, due to the tight supply and demand dynamics of the market, some luxury retailers are now pursuing own-to-occupy strategies to not only protect themselves against rising rents but also secure a long-term presence in key locations. Given the sector’s continued focus on delivering enhanced in-store customer experiences – that mirror the desirability of the products sold – the demand for luxury retail space is expected to continue at pace in the years ahead.

The positive sentiment for the retail sector translates to the hotel market, too. It has been reported that in 2023, inbound overnight visits to London sat at an astonishing 15 million, somewhat higher than Paris at approximately 12 million, and Milan at just below 5 million. For London, this is forecast to rise to nearer 20 million in 2028, reflecting the continued appeal of global wealth to our capital.

Luxury hotels have also proved to be a resilient barrier to inflation, due to the ability to adjust room rates immediately in an environment of strong demand. Our research shows that London’s pricing power is visible in the relative levels of growth in ADR between 2019 and 2023, where ADR growth for the hotel market during that period in London was 27%. In the luxury segment specifically, this stood at an incredible 42%.

London’s hotel market also stands out in terms of pricing, with one prestigious hotel offering a penthouse suite at around €80,000 per night, making it the highest price for any room among the cities analysed in our research.

And when we look to the third sector, the luxury living scene in London continues to be a major attraction for capital – it is the most mature, and most expensive high-end residential market in Europe. About 230,000 millionaires reside in the city, predominantly drawn to its esteemed private schools and health services, as well as its widely regarded position as Europe's financial hub. These factors significantly influence the pricing in the luxury residential market, which is split into three tiers in our report: Luxury, Ultra-Luxury and Exceptional.

Our analysis of average transaction values shows that London has significantly higher prices compared to other major European cities. The price per sq m in London is €30,000, a price that is not dissimilar with Monaco, New York City, and Hong Kong SAR. When compared to the other cities analysed in the report it is notably higher, with the average price per sq m for Paris sitting at €23,000. 

A significant portion of London's luxury transaction volumes are still coming from its wealthiest boroughs such as Kensington, Chelsea and Westminster, which collectively account for an impressive 77% of total transactions. This percentage has remained unchanged since 2019, highlighting the resilience and long-term appeal of London’s most exclusive areas before, during and after the pandemic.

Figure 1: Average transaction price per sq m for luxury properties vs average surface for luxury properties London, Paris and Amsterdam
Bubble size: Total transaction price in €

So, how does all of this help us predict the future for the luxury market? We can expect to see demographic changes continue to drive these impressive performance levels, with the ongoing growth of HNWIs acting as a catalyst.

We can also expect to see further growth in the branded residences segment, particularly in London as HNWIs are increasingly willing to invest more of their money for a true, luxury brand. And when we turn to pricing power, London’s luxury branded residences range from €30,000 to €100,000, higher than any other European city and reflecting its distinct appeal to affluent buyers.

In tandem, it is likely that luxury residential prices in London will continue to creep up, particularly within the most sought-after boroughs, due to limited supply, heightened demand and improving economic conditions.