Is a dose of reality returning to the UK property market, with London once again the traditional driving force of national house price growth?
“It’s clear demand for London property is back to pre-pandemic levels; however, the underlying story isn’t quite that simple,” says Stephen Moroukian, Product and Proposition Director at Barclays Private Bank.
Rewind to the start of the pandemic and months of cooped-up indoor living and the great work-from-home experiment initially drove an urban exodus, as the idea of leaving London and other cities for a new life in the country appealed to many. Buyers became engaged in a race for space – with a desire for bigger homes to live and work in, as well as gardens and easy access to the coast and countryside.
Yet today, things feel different. Commuters are pouring back into London, and the UK finally seems open for business once more.
“While there’s been talk of a London exodus, people now need to spend more time in the office again – and the commute is a greater factor within their property thinking,” says Lucian Cook, Head of Residential Research at Savills.
A shortage of available UK housing stock has also made buyers refocus on the London market.
Areas with bigger houses and gardens close to central London have recently done particularly well, according to Cook – such as “the ‘wealth corridors’ that run north through Islington and St John’s Wood towards Highgate; the strong southwest corridor from Fulham and Clapham to Wimbledon; and the emerging corridor from Ealing to Chiswick have all done particularly well recently”.
Savills is reporting that properties with five or more bedrooms in prime southwest and west London are now 7.3% higher than they were in the third quarter of 2020, compared to just 2.4% across the capital as a whole1.
Reversal of pandemic trends
Figures from Knight Frank reveal the number of buyers moving from urban to rural peaked in January 2021 and has been declining since2.
Another pandemic trend was a shift away from apartment-based city living. Flats lost not only their popularity, but also their value in many towns and cities across the country, according to research by the Office for National Statistics3 – with flats failing to keep pace with price rises for detached and semi-detached homes in the period from January 2020.
House price growth suffered in London, too, during the first year of the pandemic, according to the ONS data3. London property prices increased just 5.1%, compared to 9.6% for villages, 9% for towns and 7.8% for cities – reversing the trend of the last decade where London recorded the highest average annual growth.
“London has enjoyed incredible property price growth over the last 30 years and there haven’t been many events like the pandemic where the rest of the UK has increased more in value – nevertheless 5% growth in London is still a reasonable return on an investment,” says Moroukian at Barclays Private Bank.
The resilience of the UK capital is there for all to see – London’s average property price in 1991 was around £75,0004. Today, it’s £493,400, according to Zoopla5. That’s a more-than 500% increase in just three decades.
And as buyers return to the market, Knight Frank is predicting that the prime central London market will outperform all others in the UK by 2025, with cumulative growth of 25%6.
London could also be facing up to a shortage of new housing supply in prime areas; for the first three quarters of 2021 there were 352 transactions in the UK capital of £5 million-plus properties, compared to just 348 for the whole of 2020, according to Savills7.
“While there’s been a flight to quality, especially in the flats market, there’s no doubting that the prime central London markets are picking up,” says Tim Hyatt, Head of Residential at Knight Frank. “And with London back in full swing, there’s much more positivity about.”
London rents, too, took a tumble during the pandemic – falling as much as 10% at one point, according to Zoopla8. But again, rents are rising as tenants return to London.
“We’re seeing a big increase in rental searches, and also people buying flats,” says Camilla Dell, Founder of central London buying agency Black Brick. “It’s a complete reversal of the pandemic trend. Renters and buyers are craving well-located apartment living. They want central London again with a proximity to work, a good high street and public transport – rather than outside space.”
Overseas investors returning to UK property market
Foreign buyers are also gearing up to return to the market, although passenger numbers at Heathrow Airport were still only at 38% of pre-pandemic levels as of September 20219.
When they do return in bigger numbers, they will be looking for investments in prime real estate areas such as Chelsea, Kensington and Belgravia. Urban pieds-à-terre could see a resurgence, too, with owners embracing the country while keeping a foothold in London.
“As international buyers return, you’ll see additional demand flow back into the system,” says Cook at Savills. “London’s credentials as a safe-haven investment remain. The fundamentals underpinning demand for central London for the last 25 years are still there; it’s just international travel that’s been put on hold. London looks set for a burst of growth.”
New London commuter belt emerging
Although COVID-19 has reshaped the UK property market, it’s one of the few sectors to have shrugged off the pandemic. Sales have boomed across the country. The average UK property is today £235,000 – £17,500 more expensive than before March 2020, according to Zoopla10.
For those making the move out of London but still wanting easy access to the capital, many are settling in the prime regional urban markets of Oxford, Bristol, Bath, Cheltenham, Winchester and Cambridge. A new commuter belt is stretching far beyond the peripheries of London.
“For London leavers looking for a less dramatic lifestyle shift, and more accessible commute, there’s been a real resurgence in the last six months of these ‘uber-towns’ with their space and greenery, great accessibility and all the urban amenities,” says Cook at Savills.
Sales of £1 million-plus properties have also surged outside London11. While London is still home to a significant portion of the prime market, there’s now a broader geographical spread of sought-after, luxury properties.
Yet London is far from finished and, despite lockdowns, the things that made it such a sprawling metropolis never really went away.
So as London’s importance to Britain resumes and the future hybrid working model evolves, the return of a more “normal” property market beckons – with London again very much front and centre.
“The fundamentals for London have remained strong,” says Moroukian at Barclays Private Bank. “The UK capital has always been a property hotspot for global high-net-worth individuals.
“And with the return of international buyers, which could create a mismatch in supply and demand, this is all likely to continue to support future growth.”