London property: stick or twist?

Independent property buying advisors, Haringtons, share their views on the London property market.

Plum Fenton, London Specialist, Haringtons UK

Throughout the onset of the pandemic, we all watched with great interest as speculators considered a potential crash in the London property market with a recovery either impossible or very slow. It was all too easy for many commentators and vendors to take the disaster line, but the property market is cyclical and has survived enough wars, recessions and shattering terrorist events to teach us that property recovers.

This year has so far been defined by high demand and low supply within the prime London property market. Knight Frank has reported that the number of new buyers is 72% above the five-year average, while the number of sales instructions is down by 12% and the return to more balanced conditions doesn’t appear imminent. While we are seeing normal levels of new instructions for this time of year, the number of new buyers into the market is unrelenting and the noticeable return of the overseas purchaser extremely likely.

It is a similar story throughout the rental market where values are up on average 5% from their pre-pandemic level. It is a tough time to be a tenant now, with rents rising and the availability of stock low. However, supply adjustments are being made and the rental value growth should slow towards the end of the year.

Although the UK property market continues to be the great enricher of the last 60 years, it is important to take stock and modify to the prevailing conditions. We’ve included a few key trends to consider.

Key trends in the London property market

We have seen two key trends: families of younger children who want to move out of London but are held back by the lack of country stock, and the elderly who do not want to pay stamp duty and other associated costs with selling. The discussions of removing SDLT continues to hover over the market, and it is an issue that needs to be addressed urgently by the Government. However, we do not foresee any change in the immediate future and continue to advise our clients to put themselves in the strongest possible position to buy.

Yield versus capital growth

London is a breeding ground for the individual investor hunting for a high yielding investment property and for very good reason: it is their income. Achieving a high yield, however, is becoming increasingly at the expense of capital growth and security of investment. Long gone are the days of easily flipping a property and a higher focus is being placed on the security of the investment, its capital growth potential and re-saleability. This does not mean overpaying for an investment, but sourcing property in a location that resonates with domestic and international tenants and buyers as established and secure.

Whether you are buying new-build or period property you must consider the 15-minute walkable neighbourhood. Whereas before the pandemic more focus would be placed on commutability, the flexible working model means that the local amenities are more important than ever. Again, during the past two years, Southwest London has consistently been the most robust market playing well to the increased family demand with annual rental growth in 2021 increasing by 6.9% above pre-pandemic levels. Other key locations to note are Hampstead, Notting Hill, Hammersmith, to name but a few.

Tech and media drive demand for corporate tenants

During Brexit, many expected a mass exodus of large corporations from London to alternative cities. Naturally, through the pandemic, demand plummeted and popular locations for relocating corporate tenants such as the City and its fringes had a tough time, with rental values declining in double figures. The demand for corporate lets has been largely driven by the 20%+ rise in tech, media and telecoms positions available in London. After Silicon Valley, London has taken second place for tech development across the globe and this is reflected in venture capital and private equity flooding the City, corresponding with the increasing demand for high-quality properties for staff relocating to or moving within London. In terms of notable moves, we will follow closely the Battersea Power Station development with Apple’s move pending this year, which has over 500,000 sq. ft totalling around 40% of the total commercial space available at the site. This will likely drive rental demand within the development and high-quality stock in the surrounding area.

To conclude

We believe that if you make an informed purchase with a mid- to long-term view (5–10 years), London property is still and will remain a strong investment. However, in an evolving and robust market, it is easy to overpay for an asset that might not fare well in a tougher market.

Important information:
These views are solely the opinions of Haringtons, an independent property advisor, and do not necessarily reflect the views of Weatherbys Private Bank.