A lettings turnaround

Meanwhile the prime London market, bruised from the relentless increases in stamp duty and removal of tax breaks (the most recent being a 2% increase on non-resident buyers from this April), is starved of overseas visitors and has barely seen any growth since its last peak in 2014. However, there are very clear signs that this market is stirring with the most recent quarter seeing a modest 0.5% uptick. A return to some semblance of normality for international travel and the reins will be well and truly loosened. Aside from pent-up demand as a result of enforced separation, the most interesting sector perhaps is the rental market which is seeing a clear recovery and limits of stock.

At one point in the earlier stages of the pandemic last year, we calculated that over one third of our tenants were back in their original country, yet paying full rent. As the year progressed and the hopes for a swift demise of Covid-19 receded, we saw a number of tenants negotiate reductions but surprisingly few Covid linked terminations. As ever when the rental market faces major challenges, we anticipated the headwinds and marketed our new lets around 15% down on the previous year. We might have been ahead of the curve but the 15% we applied correlates to the 16.5% that the market dropped according to Hamptons in-house data. As a result the occupancy levels remained right up there and occupancy is of course key. In the past couple of months we have seen quite a remarkable turnaround and have agreed a number of new lets at pre-Covid levels. Tenants are now complaining of lack of choice. Indeed, Chestertons a large multi office agency, reckons stock levels are down 42% on last year.

With so much apparent data available on the market, it is sometimes confusing to establish what is actually relevant. Despite making reference to the national housing market, which we do for context, our focus is on prime and central London and the very best source of real up-to-date data comes from the agent’s subscription site, Lonres, which we so often refer to. In this commentary we thought we would add their August update – which you can access by clicking here.

Meanwhile, competition amongst lenders in the mortgage market has been slimmed down but rates are no less competitive for it, including those for buy-to-let loans.

So, demand is rising, borrowing rates are low, yields are recovering and the economic outlook is strong.

The world has no shortage of problems of course and little in life seems certain, however a new cycle for the prime London market feels very much on the cards and there are many signs pointing to this.

Post pandemic – what stays and what goes

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The last 12-18 months have introduced us all to options for work/life practices that we would never have envisaged. The debate rumbles on as to for who and how working from home will continue. The exodus from the big cities has started to diminish and central London feels near normal, dare I say. Reference to ‘returnees’ has popped up from Fulham to Notting Hill as those who rather too quickly made the move, perhaps not having lived in the country previously, turn their back on limited Deliveroo options, lack of Uber drivers, Amazon parcels left out in the rain and a dearth of cleaners and gardeners. An expensive decision to sell up and relocate only to then repeat.

 

Changing tastes

The pandemic has been instrumental in changing how we live in our homes. WFH has given rise to home working areas of course. A garden or terrace is now just as important as an additional bedroom. Natural light was always something that people wanted or needed, even if some didn’t recognise that this was so key, but this is even more the case today.

Sustainability is discussed with seriousness and not just mentioned as a token in passing. Full electric and under floor heating is replacing gas boilers and inefficient radiators. Environmentally kind paints are being sought out as are furnishings. Recycling of old furniture and materials is seen more of a responsibility today.

Technology is always adapting but some over-fancy light systems which have been so in vogue these past 10-15 years are being replaced with old fashioned on/off & dimmer switches. Wireless has allowed for all sorts of customisable gadgets from the likes of Nest consoles for heating and Phillips Wi-Fi bulbs for lighting. Fibre optic broadband is being upgraded throughout London and those who neither can nor wish to leave their home can be glued to Zoom without fear of quality for the duration of their full working day.

At the very top end of the market, the quality bar rises inexorably. The leading developments in and around the likes of Mayfair have finishes, facilities and on demand services which are a match for the very best hotels around the world. Although transaction numbers are relatively small, they are actually quite constant with the achievable upper end price per square foot (between £5k to £8k psf) under little pressure.

NOTE: The opinions expressed are solely those of the author and are not intended to offer any advice, formal or otherwise, on the nature of property investment. All the information is provided in good faith for general interest only. Recipients who have not formally appointed Obbard are advised to seek independent professional advice and to satisfy themselves on the state of the market, the opportunities and risks.