The return of foreign buyers, workers and students to central London seen in Q3 continued to be a main factor in the final months of the year.

London’s super prime market has led the way, recording its strongest quarter since Q2 2014 with the number of transactions up 37% from Q3. Savills prime sales index for Q4 revealed that the price of a 6 bedroom plus house in west London rose by 10.4% on the year and 15.1% since March 2020. This performance is particularly impressive considering that the international market was largely on pause for the final few weeks of the year due to Omicron.

Although the growth story is less impressive below the super prime threshold of £5m, it is no surprise that UHNWIs have been the first with the flexibility to return to the buyers’ market and we expect similar levels of success across Prime Central London once Covid-19 disruption has subsided for good.

This is already apparent in the rental market, with prime London values up 6.6% on the year in December 2021 and Q4 recording the strongest quarterly growth in eleven years. Similar rates of growth are expected for 2022 and this will inevitably draw more buy-to-let investors back to the capital. Rental growth for the commuter belt was more subdued at 2% on the quarter, but it saw an 8.1% increase in the year and there remains a severe lack of appropriate stock in some of the best-connected locations such as Weybridge and Cobham.

Notwithstanding the threat of further rate hikes, we expect pent up demand for central space to carry through well into 2022 which will likely have a positive knock-on effect on commuter and Prime Outer London.  

https://www.savills.co.uk/insight-and-opinion/savills-news/323317-0/decade-high-rental-growth-in-closing-months-of-2021-as-renters-return-to-prime-london-market

https://www.savills.co.uk/research_articles/229130/323909-0/prime-london-house-prices—q4-2021

https://www.knightfrank.com/london-report

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The AmCap RE Greater London Fund has recently submitted its planning proposal in respect of 269 & 271 Green Lanes in Palmers Green.

The properties were purchased by the fund in June 2021 and are currently comprised of two small office buildings at the front and a 700 sq m parking area at the rear. The development proposal involves the conversion of the office units to 6 flats and the erection of a new 3-storey block of 6 flats along with associated landscaping at the rear. All units in the new block will have private outdoor space.

The properties were purchased for £1.8m, the projected cost of development is £1.5m and the estimated GDV is £4.5m. The transaction represents a good value-add investment for the fund in line with the shift from office to better living space.

Front View

Rear View

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The third quarter of 2021 represented a significant shift in London real estate and the beginning of the real post-pandemic recovery. The easing of international travel restrictions and the return by many to their offices in the City has led to a much needed increase in demand for Zone 1 living space.

Central London residential experienced annual price growth of 0.8% in July, being the highest level since May 2016. Knight Frank predict the Prime Central London (PCL) market to experience growth of 7% next year and 25% cumulatively from 2021 to 2025. PCL rental values rose month on month in July for the first time since the start of the pandemic, spurred on by the return of both office workers and international students. According to Savills, only 20% of new central London tenants in Q3 were from the UK compared to 42% in the same period of 2020.

Data on new homebuilding suggests that the shift of supply-demand dynamics in favour of landlords is likely to continue. While completions on new homes in London have held steady, annualised Molior data suggests the level of starts on larger projects (20 or more units) fell to 15,800 in the year to June 2021, down from 18,900 a year before and the lowest since 2014.

While PCL has seen the most acute shift in sentiment, more space and greenery seems to remain a key domestic buyer requirement and it is expected that Prime Outer London will experience 4% growth in 2022 and 23% cumulatively to 2025. Data collected by Savills indicates that for many, the lifestyle changes brought on by the pandemic are likely to remain permanent leading to sustained demand for quality-of-life commuter locations.

Subject to the re-introduction of lasting Covid restrictions, we expect to see continued growth in the London residential markets as the city emerges from the tailwind of the pandemic (and Brexit).

https://content.knightfrank.com/research/78/documents/en/the-london-review-q3-2021-8461.pdf

https://content.knightfrank.com/research/78/documents/en/the-london-review-q2-2021-7977.pdf

https://www.savills.co.uk/research_articles/229130/319811-0

https://s3-eu-west-1.amazonaws.com/airdrive-images/wp-content/uploads/sites/6/20211003163740/London-housing-market-report-September-2021.pdf

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Harrington House

We are pleased to announce that the AmCap RE Greater London Fund has exchanged on the off-plan purchase of all units in the building known as “Harrington House”. The building is part of a luxury residential development located in the sought-after Ashley Park neighbourhood of Walton-on-Thames.

Harrington House is comprised of 1 and 2 bedroom apartments, each having a private terrace or garden or otherwise with access to the development’s beautifully landscaped grounds. The units were purchased at a significant discount to the market with delivery expected in the summer of 2023. 

The transaction represents a good value investment for the fund and a reflection of the market shift to accommodation outside of the city.

Click here to download the brochure!

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The combination of the stamp duty holiday and vaccine roll-out success gave rise to record breaking transaction levels in March 2021. This spilled over into Q2, with Nationwide recording the highest outturn in annual house price growth in June since November 2004.

This activity was bolstered by pent up demand and an increase in savings during the pandemic. It is worth noting that the number of mortgage approvals in the UK was up fivefold in April 2021 when compared to April 2020. Prime Outer London (POL) in particular, where there is a higher proportion of domestic buyers as part of the drive for more space and greenery, saw transactions reach their highest level since March 2016.

There are also signs that the decline in rental values across the board is bottoming out, with demand growing faster than supply for the first time since the start of the pandemic.

While the surge in momentum is unlikely to continue at the same pace, forward looking indicators suggest that transactional activity will be sustained in the near term, with POL and UK Regional house prices expected to grow by between 4-5% in 2021.

However, continued uncertainty around the relaxation of international travel restrictions as well as the introduction of a 2% surcharge for foreign buyers means growth forecasts for Prime Central London remain conservative at c.2%.

https://content.knightfrank.com/research/78/documents/en/the-london-review-q2-2021-7977.pdf

https://www.colliers.com/en-gb/research/residential-report-q2-2021

https://www.cbre.co.uk/research-and-reports/UK-What-to-Watch-in-2021—June

https://www.bloomberg.com/news/articles/2021-06-20/u-k-housing-market-slows-propped-up-by-people-leaving-london

https://www.nationwide.co.uk/-/media/MainSite/documents/about/house-price-index/2021/Jun_Q2_2021.pdf

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