London Property Market Overview 2021
London Property Market Overview 2021
The end of the year finds us once again in a time of uncertainty. As health authorities express their concern for the new COVID variant, it seems the light at the end of the tunnel continues to tease. We still have to navigate some (manageable) challenges before life comes back to normal. However, the good news is that we are better equipped to deal with these challenges and the property market has shown more resilience than initially forecasted.
A turnaround for residential sales
After a tumultuous 2020 with travel restrictions, economic uncertainty, and investor scepticism, the residential sector is beginning to recover. According to the UK House Price Index, house prices have gone up by 11.8% compared to last year. Lifestyle changes caused by the pandemic have had an important role to play along with low interest rates. As more and more people started to work from home, families chose larger houses with gardens to the detriment of apartments. As a result, prices for detached homes are now 13.8% higher, making them the highest-performing property type.
Travel restrictions were also lifted, which meant an influx of foreign investors. The 2% stamp duty for non-UK residents didn’t appear to deter foreign buyers, many of which were more than happy to expand their portfolios. Hong Kong investors continue to express interest in London real estate.
There was also the stamp duty holiday, which was introduced in July 2020 and extended until 30 September 2021 and created a wave of buyers wanting to save on a new home. Interestingly, after the stamp duty holiday ended, the doomsday scenarios prophesied by the media did not materialise. On the contrary, there was minimum disruption in the property market, which is moving under its own momentum.
So, what can we expect in 2022? According to Rightmove’s estimates, the UK residential property market will continue to pick up momentum as more homeowners will be ready to sell. However, most of that action is likely to be concentrated on the outskirts of London and beyond. COVID will, without doubt, have a significant impact on confidence. Despite rising interest rates the positive trends that started in 2021 will become more pronounced. Low interest rates are here to stay for the short term and with the value of cash depleting fast, property may provide critical hedge against high inflation.
Residential lettings picked up speed at the end of 2021
Residential lettings had a slow start. Demand was very low in the first two quarters of 2021, but then they had a dramatic turn towards the end of the year. London, for instance, had its best Q3 since 1999. As more students and professionals returned to resume their studies and careers, rent prices increased by an average of 4.6%.
2022 predictions are mixed. While Dataloft estimates that rental prices will go up by 3%, Hampton International expects that the rental sector will slow down, especially in certain areas in West London, which has already recovered to pre-pandemic levels. We expect a combination of high demand for good quality rental properties and more landlords exiting the buy-to-let sector will push rental price growth further.
The transformation of the commercial real estate sector
The pandemic has had a massive impact on London’s commercial real estate sector, which has gone through some major transformations. On the one hand, things are looking good for the industrial sector since businesses need additional warehouse space to meet demand. On the other hand, things are still uncertain for office buildings and retail. After the UK’s successful vaccine rollout, signs pointed to a mass return to the office. However, the new Omicron variant thwarted companies’ plans and, at least for the time being, we continue to hope to see full offices.
The high street also looks different. At the beginning of the pandemic, many large retailers decided to close down some of their commercial points and move online. However, the spaces didn’t stay empty for long. Independent retailers quickly took advantage of the opportunity, so we now have a more diverse high street, with food outlets and boutique stores, which gives Greater London a more vibrant, trendy feel.
This transformation will likely continue throughout 2022, fuelled by the Class E Use Class Order. Introduced in September 2020, the Order states that former use classes of A1 (shops), A2 (financial and professional), A3 (restaurants and cafes), as well as parts of D1 (non-residential institutions) and D2 (assembly and leisure) will fall under the same new use class. This means that retail premises can be given other uses (i.e., offices, indoor leisure, etc.) without obtaining consent from a local authority.
Unless a new travel ban is reinstated, we have reason to believe that London’s property market will continue to recover and thrive. However, we understand that the real estate sector hasn’t seen all its share of transformation. To guide you through these challenges our team will be at your disposal with bespoke advice. Whether you want to buy or sell property, we can help you secure the best terms and reach your goals.
We thank you for your support this past year and hope the holidays find you in high spirits and good health. Here’s to a peaceful and a prosperous 2022, filled with opportunities!