The third quarter of 2022 began well before succumbing to a steady shift in sentiment as rising interest rates and political uncertainty gripped the markets.

While annualised house price growth across the country slowed from the beginning of the period, it was still 11.5% in July and 10% in August, only 0.3% and 1% lower than 2021. Over 114,000 residential transactions were recorded in August (in line with the 2017-19 average) and the number of sales agreed in September were 14% above pre-covid levels. Despite a relatively solid quarter overall, September was the first month of no value growth since July 2021, dropping annual growth into single digits.

In addition to rising interest rates, geopolitical events continue to dampen the inflow of international capital, leaving London’s price growth rate below regional markets. According to Savills, annual price growth in London was 6.7% for September compared to a 9.5% national average. While London is expected to regain its dominance over nationwide performance, it could take some time for foreign buyers to be back in full swing. 

The rental market fared much better, with Prime Central London (PCL) and Prime Outer London (POL) lettings prices increasing by 5.3% and 3.7% respectively in the three months to August. While new supply in August was a third below its five-year average in London, the number of prospective tenants was 75% higher, a mismatch which continued in September. The rental market is likely to see further growth to the end of the year as potential buyers opt to rent in the face of higher borrowing costs. 

Putting the more recent ‘Trussonomics’ saga to one side, it is clear that there is more downwards pressure to come which could result in a reversal of house price growth in the short term. Rapidly rising interest rates coupled with inflation and market uncertainty have led some to suggest prices will fall more than originally anticipated.

Others point to forces in certain markets which offer price support. Lack of supply remains critical, with the number of buyers for quality stock far outstripping availability. This is more prominent in PCL and POL, markets which are also less reliant on borrowing than the mainstream and therefore less susceptible to interest rate rises. Value support is another factor, with PCL and POL values still being 18% and 8% below their 2014 peak, all in the context of a devalued sterling. 

While this may not be enough to counter the effects of a 4% + base rate, it makes a good case for the medium-term outlook of the prime London markets. 

https://www.reuters.com/markets/europe/uk-house-price-growth-slows-weakest-since-july-2020-rics-2022-10-12/

https://www.savills.co.uk/research_articles/229130/334133-0

https://content.knightfrank.com/research/100/documents/en/uk-residential-property-market-update-september-2022-9359.pdf

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Price growth rates continued to cool-off in Q2 2022, with concerns around inflation and rising interest rates beginning to take hold.  According to JLL, rental growth outpaced prices in the period, with annual growth in rents of 14.4% in Prime Central London (PCL). The sales market saw lower growth in prices, up 1.4% annually. The same applied to Prime Outer London (POL) which we expect to be impacted more as mortgage rates and the cost of living continue to rise.

PCL growth rates are likely to remain subdued until the international market returns in full force, something we do not expect to happen imminently. Given the situation in Ukraine and the extent of some lockdowns in Asia, we would agree with Knight Frank’s view that the return of international buyers is likely to be ‘more gradual than transformational.’ Growth in POL will be more sensitive to the underlying domestic economy which, we suspect, may require some time to re-adjust to the new climate.

While the outlook for the next 12 months remains fairly uncertain, the fundamentals point towards a healthy recovery of growth rates across London in the medium term. The PCL market is still trading at relatively good value following six years of subdued activity – average prices in Q2 2022 were 16% lower than the start of 2016. The same applies to POL to a degree, which remains 9% below its 2016 peak. The London region as a whole was the weakest performing UK market throughout the pandemic and therefore remains the most attractive for investment.

Buyers who are immune to the cost-of-living squeeze and who had previously put their plans on hold as a result of the pandemic are now more likely to consider taking advantage of this relative value. This is evidenced by the surge in buyer interest in the PCL market, with JLL recording the highest number of new PCL applicants registering in Q2 2022 since pre-pandemic, up by 63% on Q2 2021. Specifically, sales of £5m+ houses in London recorded their strongest performance on record this quarter. Considering that international arrivals in the UK were still 15% below their Q2 2019 level, one can assume there will be more of this to come.

Looking ahead, Knight Frank expect average London price growth to be 6% in 2023 with PCL being the top performer in the years to 2026. In the same period, Strutt & Parker see POL and PCL values growing by up to 30% and 35% respectively. 

https://residential.jll.co.uk/insights/research/prime-central-london-q2-2022

https://www.struttandparker.com/knowledge-and-research/prime-central-london-rental-market-set-to-rise-by-up-to-10-this-year-according-to-strutt-parker

https://www.knightfrank.com/research/report-library/the-london-review-q2-2022-9030.aspx

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The AmCap Re Greater London Fund is pleased to announce the completion of a new block deal for units in one of London’s most prestigious developments.

The deal is for twelve (12) newly completed residential units in the Legacy Buildings of Embassy Gardens, being the centrepiece of the Nine Elms redevelopment scheme in Battersea. The project was built as a JV between EcoWorld and Ballymore, with the Legacy units designed by Luis Bustamante. The development surrounds the US Embassy near the river and its amenities include two gyms, a spa, offices and board rooms, an events room, a cinema, an indoor pool and the infamous sky pool. Embassy Gardens is a five minute walk from the new Nine Elms underground station, 10 minutes to Vauxhall Station and will eventually benefit from the Nine Elms footbridge, bringing Chelsea and the King’s road even closer.

This deal represents a great Private Rental Sector opportunity and extends our foothold in the Prime Central London market.

Skypool

Interior

Bathroom interior

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Following the record-breaking performance across UK property in Q4 2021, growth rates appear to have cooled off slightly nationwide but performance in London looks positive. 

According to JLL, rents in London rose by 1.1% in Q1 2022, down from a 3.7% quarterly rise at the end of last year but up year on year. The picture is similar in the sales market, with demand across London’s core market outperforming Q1 2021. According to Savills, London price growth is starting to match the country after two years of underperforming – while domestic demand continues in commuter belts, central markets are catching up as workers return to their desks. Prices for London flats increased by 1.4% in the opening quarter of the year, the highest increase since the start of the pandemic and against a backdrop of a 1% increase for the rest of the country. The link to the City is clear as markets such as Canary Wharf, Shoreditch and Islington recorded growth of 3.7%, 3.4% and 3.3% respectively. Institutional demand has certaintly played its part, with build-to-rent investment in the UK up 50% versus Q1 2021, the majority of which is London based.

Prime outer Lonodon has also performed well in the quarter as there continues to be unmet demand for those looking to upsize. Richmond and Primrose Hill for example are up 9.1% and 8.1% on the year respectively. 

While some commentators have suggested that soaring inflation and rising interest rates could lead to darker days ahead, pricing and supply levels indicate further growth in the medium term. Prices in London are still currently 8% below their 2014 peak, with prime central being as much as 18% below such level. Although supply in the housing market is building, it continues to be outpaced by demand – the ratio of new prospective buyers to new instructions climbed to 18.2 in January 2022 from 10.4 in December, representing the highest ratio in nine years. In the prime London market, the number of new prospective buyers was 72% above the five-year average in January while the number of sales instructions was down by 12%. There is also the return of international buyers to the London market to consider, with many foreign investors having paused to reflect on the situation in Ukraine or otherwise been tied up as the pandemic continues to rear its head.

While the impacts of inflation and the situation in Ukraine mean we are unlikely to see growth levels experienced in 2021, the first quarter of 2022 suggests there is room for further growth in the capital.  

https://www.jll.co.uk/en/newsroom/uk-build-to-rent-investment-surges-50–in-q1-2022-https://content.knightfrank.com/research/78/documents/en/the-london-review-q1-2022-8766.pdf

https://www.knightfrank.com/research/article/2022-02-18-supply-continues-to-lag-demand-in-first-month-of-2022

https://www.gov.uk/government/statistics/uk-house-price-index-for-february-2022/uk-house-price-index-summary-february-2022

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The Borough of Elmbridge is often described as one of the best places to live in the UK. Sitting just 17 miles southwest of central London, this leafy corner of Surrey has been the preferred destination of many city workers and footballers since the mid-1990s.  Indeed, Esher, Cobham, Walton and Weybridge make up the ‘Surrey golden-triangle’ and are home to some of the largest and most desirable modern built houses in the country.

One of the main appeals of Elmbridge is its proximity to London whilst being surrounded by the Surrey countryside. It also offers easy access to both Heathrow and Gatwick airport, some of the country’s top schools, boutique shopping, fine restaurants and quaint village settings. It is particularly well-known for its beautiful landscapes, large homes (the average house has 6.1 bedrooms), generous gardens and celebrity residents. With Chelsea FC’s main training ground in Stoke D’Abernon, it’s no surprise that Cobham and Oxshott hold the title for the ‘villages with the most footballers in England’.

These factors have made Elmbridge the most expensive borough outside of London, with 37% of homes priced at £1m or more and the average price of property in Oxshott standing at £1,432,272. Last year Zoopla declared Elmbridge the third best place in the UK for house price growth over the last 20 years, with house prices having increased almost fourfold since 2000. In the last 10 years alone – since May 2011 – property prices have increased in the borough by an average £220,300. On top of this long-term growth, the last two years have seen the area benefit from many homeowners reassessing how and where they want to live – a trend we expect to continue.

It is also a solid rental market, offering competitive yields, long term tenancies and minimal vacancies (in addition to footballers, many tenants in the golden triangle are international corporate executives who have been relocated on a 3-4 year basis).

The AmCap-RE Greater London Fund remains heavily invested in the Elmbridge residential market, focusing on 4-6 bedroom high end houses and quality long-term tenants. The fund’s properties in the region have an average yield of 3.5% on fair value, average tenancy of 2 years + and a 95% occupancy rate. This approach has served the portfolio’s value strategy well, providing steady returns through the turbulence of 2008, Brexit and the pandemic. As the uncertainty surrounding more recent events is put behind us, the fund intends to pursue more development opportunities in the area (amongst others) to complement its income portfolio.  

Our senior executives have been investing in this market since the early 1980s and management intend to continue leveraging this experience for years to come.

https://www.foxtons.co.uk/living-in/elmbridge/

https://www.zoopla.co.uk/discover/property-news/property-hotspots-top-areas-for-long-term-house-price-growth/

https://www.thetimes.co.uk/article/a3e94a5e-8be6-11ec-b5fe-7fe087ff87b5?shareToken=3c12924b5e5f38b8848e6a180600019c

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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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