UK residential market: calm returns to prime property markets

Data suggests soft landing after pandemic with resilient demand and increasing supply.

Written By:

Tom Bill, Knight Frank

17 May 2023

2 minutes to read

After an extraordinary period, 2023 has the potential to be the most predictable year since the pandemic.

London sales market

Demand in the London sales market is resilient and supply is recovering at pace.

The number of new prospective buyers registering in the first quarter of this year was 42% higher than the five-year average excluding 2020 across London. Meanwhile, new sales instructions were up by 20%.

The further we get from last September’s mini-Budget, the stronger the market becomes. The number of offers made was 10% above the five-year average in Q1 2023 after being down by 11% in the final three months of last year.

Overall, the market is solid without being spectacular and things have stabilised after a four-year roller-coaster ride.

To underline how balanced conditions are, average prices in prime central London are only 0.2% higher than this time last year. The change is 1.8% in prime outer London (see chart).

London lettings market

However, the pain is set to continue for tenants.

Demand has far outstripped supply in London’s rental market over the last two years.

To put that in stark numbers, average rents in prime central London (PCL) grew by 50% in the 24 months to April 2023. In prime outer London (POL), the equivalent increase was 41%.

Meanwhile, there were 42% fewer new lettings listings in the two years to April than the previous 24 months across both markets, Rightmove data shows.

Simply put, strong demand as the economy re-opened was not matched by supply.

In the meantime, annual rental value growth remains stubbornly high. Average rents rose by 16.4% in PCL in the year to April while the figure was 13.9% in POL.

The supply/demand imbalance is improving but only slowly, with annual growth down from a high of more than 20% in both markets a year ago.

Demand resilient in spring market

Outside of London, poor weather and the timing of Easter meant a later start to the spring market than initially expected. However, demand has proved resilient, and transactions are climbing as supply increases.

In the four weeks to 14 May, new prospective buyers were 4% up compared with the five-year average, and a surge of supply has boosted viewings, which were up 14% in the same period.

Supply continues to build, with market valuation appraisals, a leading indicator of future supply, up 34% versus the five-year average in the same period and new instructions for sale up 16%.

Read more or get in contact: Tom Bill, head of UK residential research