Alexander Lewis, of Knight Frank's Residential Development team, looks at the next super-prime areas in London.

At a time when the Prime Central London Property  is reaching new highs, you might think it perverse to look for value in the market. However, Knight Frank are backing two areas of London that they feel are undervalued given their fundamental characteristics which may be succinctly demonstrated by the following formula:

(SPN + B + T + P + RP + S) - R

SPN is a super-prime neighbour, B Beautiful housing stock and area, T is Good transport links, P is Nearby Parks, RP is Royal Palace, S is Security and R is designer retail areas and amenities.

While there will always be hot spots created by new transport links, a shift in planning policy or simply by intermittent market favour, we believe the best investment is in areas with historical value and credibility and huge potential upside long term, rather than trying to trend spot. In this respect, two areas stand out.

Mayfair, Belgravia and Knightsbridge are still regarded as the most desirable residential districts in London and the prices achieved for the best properties reflect this, often in excess of £3,000 psf. Consequently they fall into the category of "Super Prime" areas. This is largely a factor of international perception. These districts are home to the most exclusive retail and leisure amenity in London, are safe, have the housing stock and nearby parks. They tick all the boxes.

Kensington and St James's tick most of the boxes, but have fallen down on the shops and restaurants. Historically, they have not been perceived in the same league as Mayfair, Belgravia and Knightsbridge, but we believe that these areas have the potential to achieve super prime prices for the best stock. Indeed, we would go as far as to say that there are deals to be had for the best second hand stock.

Kensington

Kensington has always lagged behind neighbouring Knightsbridge. But this is one of the safest and most beautiful residential districts of Central London. It is buffered to the north and south by the most expensive parts of Notting Hill and South Kensington and to the east and west by two glorious London parks. It is home to the Duke and Duchess of Cambridge (Kensington Palace) and the Royal Borough of Kensington and Chelsea.

However, good second hand stock can still be purchased for £1,250 - £1,750 psf and regardless of development potential, we believe that this represents an exciting investment opportunity in itself.

Kensington is by no means unfamiliar with residential development with Academy Gardens, Thornwood Gardens, Kensington Green, Wycombe Square and 3A Palace Green are all desirable new build schemes. But Academy Gardens is only £2,750 psf at the very top end and historically, the specification of these schemes has mirrored lower end values across Kensington. They were designed for a time when Kensington lacked the international profile that has been creeping in over recent years.

However, given the influx of international interest into Kensington over the last ten years, such is the demand for the best London new  build property, Kensington is now capable of supporting super prime prices in excess of £3,000 psf and the area is ready for a internationally renowned exemplar residential schemes along the lines of One Hyde Park.

Accordingly, we believe that the schemes at De Vere Gardens (Lancer) and Campden Hill (Native Land Grosvenor) will demonstrate this potential and establish Kensington as a super prime location.

St James's (SW1A)

St James's perhaps represents less of an obvious opportunity than Kensington purely by virtue of the limited development opportunities for residential due to its size and underlying commercial values. To date, values have very rarely exceeded £2,000 psf, let alone £2,500 although neighbouring Mayfair sells in excess of £3,000psf. However, again it fulfils the performance criteria in our formula. Green Park and St James's Park lie to the west and south, it borders prime Mayfair, has some of London's most beautiful architecture, good transport links and is one of London's safest areas with a Royal Palace at its heart.

However, developers and investors must be very selective. St James's, while small, is widely varied in stock and the range of values this creates can be significant. However, given its pedigree the potential lies here for premium values for well presented residential apartments in the most desirable locations. Unlike Kensington, there have been no residential schemes in recent years and the market awaits the delivery of "the Walpole" at 4-5 Arlington Street with great interest.

Whitehall and Buckingham Palace (SW1A) are also areas to be watched, although they do not meet all the criteria of our formula. But again, they lie at the heart of this country's history with the most striking architecture and security. Whitehall Court is the only building to have breached £2,000 psf, but even the new Corinthia Hotel is a measure of how perceptions are changing in the area.

Conclusion

Both Kensington and St James's are two of London's most exclusive residential districts with a rich history. While there will of course be wide variances in value across both these areas, we believe that properties in the very best locations if finished to the highest specification should take their place in the super prime bracket that has largely been reserved for Knightsbridge, Belgravia and Mayfair. We believe that they can support prices in excess of £3,000 psf. However, this is by no means universal, and developers must understand what drives value within these areas. For those who do, and deliver a product in line with market demand, we believe they will achieve values that highlight Kensington and St James's as aspirational locations, rather than the poorer neighbours of the traditional big hitters.