Friday property news update - 4 June
New York's roaring twenties, the impact of hybrid working and a turning point in prime central London
4 minutes to read
We are eager to hear your thoughts regarding moving home and your expectations for the year ahead via our latest Knight Frank sentiment survey.
Are you looking to move in 2021, to where and to which type of property? Given a period like no other, what do you now value most highly in a home? Will you continue to work from home some of the time even after lockdown restrictions end? And could the end of the stamp duty holiday on 31 June and subsequent taper affect your plans?
Click here to take part.
Prime London prices rise and New York roars
House prices in prime central London grew by 0.3% in the year to May, the first rise in five years.
The last time prices increased on an annual basis was in May 2016, the month before the EU referendum. Subsequent political uncertainty, combined with a rising taxes on high-value property, meant average prices fell 17% in the intervening period.
A period of house price inflation in PCL has therefore been overdue and was on the horizon when the pandemic struck, as the below chart shows. The relaxing of international travel rules will gradually provide a further boost, particularly in locations such as Mayfair and Knightsbridge.
The outlook for prime property is also the focus of a new episode of Intelligence Talks. Anna Ward speaks to Jonathan Miller, CEO of Miller Samuel, to find out whether we are on the cusp of a Roaring Twenties for London and New York’s prime markets. Listen here, or wherever you get your podcasts.
Prime lettings
Stronger demand is helping to reverse the rental value declines that have taken place in prime London property markets over the course of the pandemic.
The decline narrowed to 12.2% in prime central London in the year to May, which compared to a fall of 14.3% in March. In prime outer London, the figure was -8.2%, compared to a decline that bottomed out at -11.7% in February.
It's clear a turn is underway as the economy reopens. The number of new prospective tenants in the three months to May was 76% higher than the first three months of 2020.
Tenants are taking advantage of falling rents and moving to properties that enable them to shorten their commute or gain extra home-working space against the positive backdrop of the UK’s economic recovery, writes Tom Bill.
London offices
A PwC survey of 258 of Britain’s biggest companies conducted between February and March found that half planned to cut the size of their property portfolio due to the shift to hybrid working. Of those, a third said that they expected to reduce their footprint by more than 30%.
Older, second hand space will feel the brunt of these cuts as occupiers turn their attention to modern, high-quality space that facilitates new methods of working. Competition for this space is growing as supply dwindles. As we discussed last week, there is just 7.5m sq ft of speculative space under construction compared to a three year average take-up of new and refurbished space of about 15m sq ft.
Even so, our forecasts include a 10% reduction to office demand due to the structural shift to new hybrid models of working. That would mean a 2.1% decline in prime headline rents in the City of London during 2021, before rents return to growth in 2022-25 at an annual average growth rate of 2.7%. In the West End, we expect prime headline rents to remain unchanged in 2021, before rising in 2022-25 at an annual average growth rate of 2.3% during the five year forecast period.
Borrowing
Lenders granted 86,900 mortgages to homebuyers in April, up 4% on a month earlier, according to data published this week by the Bank of England.
Though that’s only a small rise on the previous month, lending remains well above historic norms as buyers continue to reassess their housing needs in the wake of the pandemic. Lenders typically issue about 64,000 loans for house purchase a month around this time of year, according to Knight Frank Finance.
In another sign of swelling consumer confidence, the data also revealed consumers saved the smallest amount since the pandemic began, although the £10.7 billion saved during the month is still well above the £4.6 billion a month consumers typically save.
In other news...
In a webinar on June 10th at 9am, we explore the themes emerging from the London Tall Buildings Survey 2021 and discuss how developers and town planners are responding to changing market conditions and evolving planning policies. Register here.
Elsewhere - London traders are rebelling against EU moves, Portugal travel chaos, the services sector takes flight, the price of petrol soars, the price of food soars, the reopening continues, stronger US jobs data, Sir George Iacobescu steps down, Hong Kong offices reopen, and finally, home moves overtake first time buyers to drive the housing market.
Photo by Roman Fox on Unsplash