The gradual improvement in the jobs market in London throughout 2009, along with the stabilisation of the level of rental stock in the market, led to rental growth in the second half of 2009. As in the sales market, the evidence of increased rents was restricted to the 3rd Quarter, when demand receives an annual boost with the arrival of third-level students, new entrants to the London jobs market and the annual round of corporate lettings. After experiencing a reduction in rent levels of 16% over 18 months to June 2009, rents increased by 5%. Although nationally the return of buy-to-let investors was flagged by the press, overall the investment market remained moribund due to the lack of leverage from the banking system.

Sales prices and rents increased in London property in 2009 on the back of improved economic confidence. This relatively benign environment was rudely shattered on 25th November 2009 when Dubai asked for a six month debt standstill at Dubai World, the government’s flagship holding company and developer of xtravagant schemes such as The Palm and The World. Residential values in Dubai were reported to have fallen by up to 60%. Through P&O and Istithmar Dubai World is also a significant owner of commercial property in London and other global centres. In response on 26th November, the FTSE 100 Index fell 170.68 points, a reduction of 3.2% and its biggest fall in 8 months. The following day, however, it posted an increase of 51.6 points, or 1%. There may be longer term implications for asset values globally, but mature global centres such as London could be beneficiaries.

Although the Midtown, City and Docklands residential markets performed far better than expected in 2009, we remain cautious about short-term prospects. The first half of 2010 will be strongly influenced by two factors: the continued ultra-conservative stance of the banks on mortgage lending and political uncertainty generated by the General Election which must be held by 3rd June at the latest.

Interest rates are widely expected to remain unchanged and quantitative easing has most likely reached its limit. As a result we envisage stable prices and rents in the first half of 2010, but the potential for further modest increases of up to 5% in both prices and rents in the second half of 2010.