What’s next for Prime Central London?
Both Savills and Knight Frank acknowledge that we remain in a seller’s market with demand outstripping supply such that well-priced properties in Prime Central London (PCL) sell with lightning speed. London continues to be attractive for stability, extensive leisure facilities and access to the arts, schools and business. However, without the stimulus of the stamp duty holiday and the prospect of interest rate rises we consider the trends and opportunities for the PCL market in 2022:
Race for space
The ‘race for space’ during the pandemic has been well-documented with a wholescale reassessment of housing needs and a move from the city to prime regional locations such as the Cotswolds, Surrey and coastal areas. Buyers remain motivated by larger homes, private outdoor space, privacy and private leisure and wellbeing amenities that fit their lifestyles (home offices, cinemas, gyms, wine cellars etc).
In London we expect to see continued demand for detached houses in the leafy wealth corridors across the capital. Commentators such as Savills note the depressed activity in the flat market across PCL over the past two years represents an investment opportunity offering good value and returns to both domestic and international buyers.
Increased costs of building work
The costs of carrying out building work to renovate existing homes have risen in the last 18 months increasing by as much as 20% and with increased demand and lack of availability we expect certain buyers to be less interested in taking on an extensive project preferring well-priced ‘move-in ready’ property in a desirable area.
As working from home restrictions are lifted we expect there to be a further reassessment of housing needs for those who now need to commute to the city for work (albeit less frequently) or to enjoy the retail and leisure opportunities in London. The PCL flat market is already starting to see a return from buyers looking for a ‘move-in ready’ pied-à-terre to sit alongside a larger family home in the country or a co-primary residence.
The impact of the return of international buyers to the London market cannot be underestimated as we expect significantly increased demand for properties in London’s prime locations. Increasing foreign travel should also rejuvenate the market for PCL apartments (both for sales and lettings) as international buyers relocate to London for work, to study or to set up a base in the UK while taking advantage of the opportunity to invest in London at a favourable price.
Interest rates and lending
Commentators expect interest rate rises this year with buyers seeking to lock in longer term fixed rate mortgage finance in anticipation.
The ongoing repercussions of the Grenfell fire tragedy will continue to suppress buyers’ appetite for flats in older buildings with unresolved cladding or other fire safety issues. The leasehold market is also blighted with escalating ground rents causing difficulties with mortgage finance; an issue which is yet to be satisfactorily addressed. That said, a number of prestigious design-led new-build developments are garnering attention from buyers looking for high end ‘move-in ready’ homes in London’s prime postcodes.
Energy performance and environmental credentials
We expect buyers and investors in London real estate to prioritise energy performance and environmental credentials to a far greater degree than seen before. Looking ahead to the increase of the minimum energy standard for lettings we expect well-advised buyers, buy to let landlords and lenders to scrutinise the energy performance of their portfolios and potential acquisitions in a market where positive environmental credentials will be increasingly priced in.