The return of international buyers, increasing levels of stock and rising mortgage rates are likely to have a positive effect on the UK sales market in 2022. The significant caveat is the Omicron variant.
If its impact proves more serious than hoped, it would dilute these trends, potentially keeping more upwards pressure on prices and increasing the focus on space and greenery. Demand has certainly been strong in recent months, with the number of international corporate relocation enquiries back to its pre-Covid level for the first time in October.
This was still true in November, with Omicron only discovered towards the end of the month. Enquiry levels were 20% higher than in November 2019.
The numbers have built steadily this year against the backdrop of the UK’s vaccination programme although there is likely to be a seasonal dip over Christmas. How quickly demand returns in January will depend on Omicron and the government’s response in the coming weeks.
Rents rebound
Meanwhile, rental values are rebounding strongly as offices and Universities re-open. At the same time, supply has fallen as the flood of short-let properties that came onto the long-let market has dried up.
Average rents rose 5.3% in the three months to November in prime central London while there was an increase of 5.1% over the same period in prime outer London.
It was the largest quarterly gain in POL since March 2004 and the biggest such increase in PCL since September 2010.
It would take more than a minor setback with Omicron to put a meaningful dent in this recovery. It would require a rapid rewind to the start of this year when the vaccination programme was in its infancy, staycations were banned, working from home was widespread and all University lectures were online.
King’s Cross and Bayswater lead the way
So, which areas have seen the strongest growth over the last six months and what does that tell us about how the lettings market will perform in the coming months?
King’s Cross is the area of the capital that has seen the strongest growth since May (16.8%), underlining the strength of student demand. Nearby universities include Central Saint Martins, University College London and King’s College London.
Hayley Thomas, head of lettings at King’s Cross for Knight Frank, says demand from students remains strong despite the academic year has started.
She explained: “A number of students went into short-term accommodation earlier this year because demand was so high and supply was so tight. Many of them are still looking for long-let properties so I expect demand to remain strong into next year.”
Strong rental value growth in Bayswater (15.7%) is partly down to the ‘escape to the country’ trend, said Samantha Di Mond, a senior lettings negotiator in Knight Frank’s Hyde Park office.
Hayley adds: “A lot of people who moved west from London now want a one or two-bedroom flat in Bayswater to have as a base in the capital because it’s so close to Paddington. Covid uncertainty means there is still price sensitivity and that relative affordability is another thing the area has in its favour compared to neighbouring areas of prime central London.”
Strong rental value growth in areas like Wapping and Canary Wharf are explained by the fact more offices are now open, with many workers seeking a base close to work. We would expect that trend to continue if further lockdowns are avoided.
Meanwhile, Notting Hill and St John’s Wood have both benefitted from the ‘race for space’, with historically-low supply driving rents higher. If Covid measures tighten further, both areas – as well as Bayswater - may experience a further pick-up in demand.
