Supply still trails demand in prime London sales markets

Supply shortages have become a feature of the global economy as the pandemic tentatively enters exit mode in the UK.

It is proof that turning off activity is more straightforward than turning it back on again.

It is no different in the UK property market, where a vicious circle of low supply has affected prices and transaction volumes this year.

In London, demand continues to surge this autumn as supply plays catch up. Excluding 2020, the number of new prospective buyers registering in London was 27% above the five-year average in the third quarter.

Other metrics were equally positive given the potential for a post-stamp duty holiday lull. The number of offers accepted was 51% higher and total exchanges were up 10%, Knight Frank data shows.

However, on the supply side, the number of new sales instructions was 21% down.

“The re-balancing of supply and demand is proving to be a gradual process,” said Tom Bill, head of UK residential research at Knight Frank. “More vendors will come forward as supply builds, meaning it won’t happen overnight. Meanwhile demand is only getting stronger as international travel rules are relaxed.”

As a result, the ratio of demand versus supply was at its third highest level in September since the start of 2019, as the chart shows.

The high-point came in January 2020 during the so-called Boris Bounce following the December 2019 general election, when demand surged. The market shutdown three months later produced a similar distortive effect as vendors retreated.

Prices continued on the same trajectory of the last six months. There was an annual increase of 0.7% in prime central London (PCL) in September and a rise of 3.1% in prime outer London. The race for space is lifting prices in the suburbs while the absence of international buyers means prices in PCL are in a holding pattern.

Even though quarantine rules were relaxed from this week, it is unlikely to signal business as usual just yet.

The main reason is timing. The fact the school year has already started means some overseas buyers will wait until next year. Elsewhere, a number of high-net-worth individuals are taking advantage of the relaxed travel rules, which is benefitting some markets more than others.

For example, the number of new prospective buyers registering in Mayfair and Knightsbridge in September was 11% higher than the same month last year. Meanwhile, across the whole of PCL, there was an 8% decline.

It underlines how the prime London sales market is returning to normal conditions one step at a time.