It’s an anomaly only a pandemic-like event can truly explain, the first-of-its-kind occurrence in three decades. London’s population is falling.
The spread of COVID-19 first checked the flow of migrants into the city. A little later, it sent residents scrambling for safety in outer districts and less densely populated boroughs. Then came redundancies, furlough schemes, and the promise of more affordable housing outside the capital.
UK’s Economic Statistics Centre of Excellence estimates around 700,000 foreign-born residents have left the city — that is, around 8% of London’s population. This loss has reverberated across the city’s property market. According to estate agent Chestertons, rental prices in Greater London fell by 4% in 2021. Rental prices in prime central London and other prime areas of the capital dipped even further, by 20% and 15% respectively.
Meanwhile, property agent CBRE says GBP 8.9 billion worth of central London offices, stores, and office and retail development sites were traded in 2020 — a 30% drop from the year before.
But CBRE also found evidence of recovery in the final quarter of the year, on the back of vaccine approvals and national rollouts. Investment volumes in the last quarter of 2020 totaled GBP 4.5 billion — not just the largest quarterly total of the year, but also half of the year’s total investment volume.
So is this uptick indicative of sustained growth? Or will a third national lockdown and underlying economic weaknesses produce a continued drag on London’s property market in 2021?
THE RENTAL MARKET
Enduring work-from-home orders and rising unemployment rates will continue to drive people out of the capital — according to estate agency Hamptons, this London exodus trend will persist at least through the first half of 2021.
The rental sector’s success also depends largely on the UK’s overall economic recovery, which is not expected to regain levels recorded before the pandemic until mid-2023. Still, the economy is slated for a growth rate of around 6% in 2021. So once the latest restrictions are lifted, tenant demand is expected to increase. This will lead to the rate of rental decline slowing. And if the economy recovers as expected, annual rent should resume growth in 2022.
THE RESIDENTIAL MARKET
For years the capital’s housing market outpaced that of the rest of the country. The pandemic changed this, but the recent ‘stamp duty holiday’, which voids tax on properties under GBP 500,000 till March 31, has produced a slight boom in the residential market. Unfortunately, if the tax holiday isn’t extended by parliament, transaction levels will slow down after spring.
Chestertons predicts house prices will decrease by 2% in Greater London by the end of 2021. But central London and other higher-value locations will likely fare better. The agency predicts central London prices will stabilise in 2021 and other prime London locations will rise by 2%.
THE COMMERCIAL PROPERTY MARKET
Although many firms across London are expected to continue with flexible and hybrid models of working even after the pandemic, a number of bosses have said the office will still be crucial to doing business, functioning as a hub and a meeting ground.
CBRE’s Real Estate Market Outlook Report for 2021 forecasts that central London’s commercial property sector will gain strength throughout the year as vaccination drives succeed and workers return to offices — sales and investment volumes are expected to continue to recover over the next 12 months.
London has long been considered a safe haven for property investors across the globe. And, in spite of the pandemic, overseas investors still recognise its long-term appeal. The Emerging Trends in Real Estate report from PricewaterhouseCoopers named London the second-best place for property investment in Europe.
Investors are now snapping up property in the UK before the additional 2% stamp duty surcharge comes into effect for overseas buyers in April. But with London’s property market being more susceptible to economic and political fluctuations, the mainstream market will likely make only a partial recovery in 2021.
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