Market analysis revealed that the number of offers accepted across the capital last month was the highest figure in a decade, underlining the current strength of appetite for higher-value property in London.
According to the latest data from Knight Frank, a combination of factors has led to the pipeline being stronger than it was in the final months of the stamp duty holiday in 2021:
First, international travel is resuming, as discussed last month. The number of international arrivals at Heathrow in June was only 17% down on the same month in 2019. Compare that to an equivalent drop of 87% last June.
Second, prime London markets are relatively good value as buyers continue to reassess how and where they live after Covid. While all the attention was on the escape to the country trend during the pandemic, price growth in London was lacklustre, even after six subdued years.
Average prices in prime central London are still 15% down on their previous peak seven years ago.
There is also a creeping sense that investors are looking more closely at safe-haven assets, which have traditionally benefitted the prime London property market. Investor nerves have been clearly on display in 2022 as central banks attempt to avoid stagflation. After steep declines this year due to a strengthening US dollar, the gold price has risen modestly since mid-July against a backdrop of geopolitical tension.
Average price growth in Prime Central London was 2.8% in the year to July and 5.2% in Prime Outer London (POL), though the performance was stronger in higher price brackets.
Over in the prime lettings market, things remain a long way from normality. While demand is robust as the economy re-opens and tenants reassess how and where they live, stock remains low, with the imbalance between supply and demand widening further last month.
A flood of short-let properties came onto the market last year due to staycation restrictions, which drove down rental values. As the economy re-opened, supply fell and demand spiked, causing rents to rise.
The arrival of international students and corporate tenants this summer will further fuel the imbalance. It is unlikely the situation will change meaningfully while the sales market in London remains so robust.
Strong trading activity has led to the absence of so-called ‘accidental landlords’, or owners who let out their property after failing to achieve the asking price. However, following the 50 basis point interest rate rise last week, there will be further upwards pressure on mortgage rates, which are expected to cool demand later this year.
For now, there remains strong upwards pressure on rental values. Average rents in PCL rose 22.2% in the year to July, a rate that has narrowed from a peak of 29.2% in April. In POL, the annual rise fell to 17.3% from 23.5% in April.
It is not a trend limited to London. Prime residential rents in global cities are rising at their fastest pace since 2010, as explored here.
