New research by Savills has revealed that residential properties prime central London have made an unexpected positive return in the past two quarters of 2009 after a first quarter fall of -4%.

Savills’ report showed that successive rises in the price of property occurred in the second and third quarter by +4.3% and +4% respectively. It has partly attributed this to a decrease in stock, with levels 20-30% below average and an increase in demand.

Significantly, for the first time since the last quarter of 2008, flats have outperformed houses increasing by +4.8% whereas houses have only gone up by +3%. In the core prime markets of Mayfair, Kensington, Chelsea and Belgravia values have improved by +6.1%, however this is some way off their peak, by 20.25%.

Yolande Barnes, head of Savills research department, said: “This growth is caused by very low levels of supply failing to meet an increased level of pent-up demand, predominantly from cash buyers or those with very high levels of equity to spend.”

Meanwhile, in south west London, the research showed that the market has recovered much quicker with values up +8.4% in the period from July to September, following on from an increase of +6.4% during the second quarter.

As the values in this part of London decreased more dramatically during the downturn than other prime markets, properties appeared to have provided better value with 85% of buyers being UK nationals purchasing for need rather than investment-related reasons.

Barnes continued: “We expect the south-west and central London markets to continue to perform differently to each other. Demand levels will probably prove more volatile in the central markets due to the discretionary nature of buyers.”

The report summarised that Savills expects values to plateau and possibly even decrease again as more stock comes on the market as potential sellers look to take advantage of the market at its highest peak for two years.