In this pre-Christmas post, we take a closer look at the commercial and rental markets, as well as our usual snapshot of the residential market.
The latest House Price Index released on 7 December by the Halifax has put annual UK house price growth at 8.2%, placing quarterly house price inflation at a 15 year high. The average UK home is now worth more than £270,000 which is £20,000 than a year ago. Compare this figure with the £520,000 you need to buy a home in London and it’s clear that despite the sluggish 1.1% annual house price, the London market has remained resilient. However, the Halifax report warns that there are several factors that may have a cooling effect on the market in the future. Firstly, there’s the prospect of a rise in interest rates when the Bank of England make their monthly announcement on rates on 16 December. Secondly, household budgets are being squeezed by rising inflation, particularly in fuel costs. Finally, nobody knows yet what the impact of the Omicron variant will be on the economy as a whole and this may well make people feel cautious about undertaking a house move.
Whilst residential markets might be facing uncertain times once again, the outlook for the commercial market looks very positive. According to research released this week by Knight Frank, the central London office market has seen over £2.2 billion of investment since October. Nearly half of this investment came from the USA, with the UK and South East Asia responsible for 29% and 11% respectively. The prime office market of new or refurbished accommodation accounted for nearly three-quarters of the investment, with the telecommunications, media and technology sectors being strongly represented. Knight Frank believe that the strength of the London office market will continue to grow as the city is seen as providing very favourable yields compared to other European cities.
A growing trend in the London commercial sector is the repurposing of former retail space into office and leisure units. In the West End shopping district, for example, the upper floors of John Lewis, Marks and Spencer and Fenwick are all currently undergoing conversion into more profitable office space. The trend for converting redundant retail space for leisure purposes is even more apparent, especially in areas where there are growing populations of young, affluent professionals. These areas, once lacking in cultural opportunities, now have access to a variety of venues such as small cinemas , live music and art spaces in buildings that were once shops or even factories. London, like many large cities worldwide, seems to be moving towards the fifteen minute city model, where areas, once just commuter suburbs, are developing into real community hubs offering everything the local population needs.
Turning to the rental market, demand continues to soar due to the combined effects of back to normal office life and the return of international students and travellers. This is very welcome for
London landlords who saw rental income fall during the periods of lockdown and enforced homeworking. But for would-be tenants it’s a very different story. There is a significant lack of new rental property coming onto the market and this has been exacerbated by delays in the completion of new housing developments caused by a shortage of labour and materials. As a result, rents in London are rising again and are now at least as high as they were pre-pandemic. In fact, recent research by Bentham & reeves suggests that rents are on average 5.7% higher than they were in 2019.
Faced with waits of several months before being able to secure a rented property, many people find themselves having to resort to short term accommodation such as Airbnb while they continue their search for longer term rental property. However, increasing numbers of tenants are looking further afield than they had originally planned. With hybrid working becoming a norm, many are happy to face a longer commute if it is only for a couple of days a week. Rental property in the London fringes such as Harrow or commuter towns such as Slough is proving increasingly popular. With no prospect of in rise in rental stock in the immediate future, the predictions are that London rents will continue to rise until at least the middle of 2022.
“With no prospect of in rise in rental stock in the immediate future, the predictions are that London rents will continue to rise until at least the middle of 2022”