In this opinion piece, Jourdan Prowting, Partner Residential Auction at Allsop, analyses London's residential property market and discusses whether now is the time for investors to take advantage.
In the dash for space catalysed by the pandemic, London’s residential market, at least in the short term, lost out. London’s average prices increased by 2.8% over the year to September, compared with 11.8% nationally. In some central London postcodes, prices contracted from 10 to 20% at the pandemic’s height. But with London’s office workers and international buyers returning, is the capital about to regain lost ground?
This September, prime central London property prices made their highest annual gain since September 2015, increasing by 1.2%, indicating that international and domestic HNWIs are back in the market. With the onset of the pandemic, the wealthy retreated to the country while international buyers typically bound for London were unable to visit prospective properties. Now, with perceived bargains to be had in central London, especially compared to the dizzy heights of 2014-15, flights resuming and life coming back to the city, buyers are beginning to return.
An indication of London’s post-pandemic recovery is the return of workers, shoppers and leisure visitors to the city. Flexible workspace provider, WeWork, reported Q3 revenue for its London offices was 4% above that of the final quarter in 2019, while rival IWG said there was a 31% surge in visitors to its London workspaces in September compared to August. Shoppers are also returning, with West End footfall on Saturday 13 November being 13% up on the equivalent date in 2019.
With workers, students and others returning to the capital, rents have also increased and are beginning to reverse the dip caused by the pandemic. In prime central London during Q3 this year, rents rose by 2.8% while in outer London, rents in good locations increased by 2.6%, according to Knight Frank. Zoopla recorded a bounce back in Q3 with a 4.7% increase in London rents, compared to falls of 10% at the start of the year. There was also a surge of 50% of tenancies agreed above the five-year rolling average.
New infrastructure is coming, too. The much-anticipated Elizabeth line is to commence operations early next year. Although its impact on capital values and rents has already largely been priced into properties, its full effect is yet to play out. There are also whispers that Crossrail 2 may still take place, providing yet further opportunities for investment and growth.
Overall, London is set to remain a major global city and economic powerhouse attracting people from home and abroad. In the case of central and prime London compared to the market’s 2014 peak, residential assets look to be well-priced. The capital still benefits from a strong rental market too, and there is still value to be found in the redevelopment of stock. Our residential auctions provide many opportunities for investors to add value.
Then there is the overall economic environment. Although interest rates are likely to rise due to concerns about a spike in inflation, they do so from a very low base and will remain historically low. This will continue to drive investment into assets, such as property and economically strong and safe locations, such as London.
*Jourdan Prowting is the Partner of Residential Auction at Allsop