Prices Set to Rise
We expect the revival in the demand for apartments for use as a ‘pied-a-terre’, to increase in 2022 with a focus on one bedroom properties for sale and for rental. We see this as a long term trend because people who relocated from the City during the pandemic will continue to need a base in the City for as long as the office economy thrives on human interaction.
Unfortunately, the impasse over fire safety regulations will persist into 2022 and well beyond. There is very little understanding of how long works will take or their impact on liveability. This will not be a quick fix and in the meantime, material costs will rise and contractors on the approved list will be able to name their prices.
Residential property prices across central London remain fixed at 2014 levels. This is a buying opportunity and we expect to see overseas buyers in particular seizing the moment in 2022. Improved yields and relative pricing support their buying decisions. On the UK’s south coast, multiple bids have become the norm and prices have escalated which shifts the relative pricing in our markets.
We expect price increases in 2022 of around 3% over the year. People will continue to return to the City. Despite the set-back in December, the mass return to London offices in the autumn showed that there is a willingness and a need for many businesses to have staff return to the office. The strength of the desire to work physically alongside co-workers took some businesses by surprise and reinforces the importance of cities and agglomeration economies.
The Monday to Friday 5-day office week has probably been forever broken. The new pattern looks likely to be 3 or 4 days in the office with one or two days working from home which will help underpin demand for homes in our markets.
The stock of homes to rent has been depleted and remains extraordinarily low. Rents will rise further in 2022, by around 5%, as demand outstrips supply further improving the return for landlords.
The cause of this imbalance will take time to play out. Apartments leased at substantially discounted rates during the pandemic will not come back to the market until landlords are able to restore market rents but we expect supply to remain low in the first six months of 2022. Stock will return to the short term market.
Tenants who moved into zone 1 during the pandemic at discounted rents have a shock in store on renewal which will eventually encourage more movement.
Rising rents will also reinforce the case for buying and there is now a significant cohort of prospective buyers who saved deposits during the pandemic.
Awareness of climate change has risen and we expect this issue to grow in significance in the minds of buyers and renters making housing decisions. Initially the debate will focus on energy costs but increasingly that will extend to materials and other costs in use. Forthcoming legislation is expected to confirm that Buy to Let investors will be required to comply to a minimum standard on energy performance requiring an Energy Performance Certificate grade C. Existing landlords will be given until 2028 to fall in line.
The new Housing Secretary, Michael Gove, is expected to introduce new measures in 2023 which end the landlord’s right to evict tenants under the rules known as ‘Section 21’. Labour, Generation Rent and Shelter have called again for the ending of Section 21 eviction powers, as pledged by the Conservatives in the 2019 General Election. However, the Department of Levelling Up, Housing and Communities is not expected to publish the long-awaited Rental Reform White Paper until late 2022.
We see very little prospect of new development activity in our markets increasing. Sites are scarce, planning is complex and expensive, meaning that the small scale development, which was once typical in our markets, is very challenging and rarely viable – particularly as costs are escalating and supply chain issues persist.
This will help to keep new home prices at a premium and while some UK buyers will be unable to justify the high level of service charges attached to the latest developments, for investors and tenants, these costs are built into the rent.
With few options for prospective buyers, renters or developers in our markets, prices are likely to rise in 2022. The property market across Central London has been given a boost by the most unexpected cocktail of circumstances.