Property Market Commentary – the ongoing impact of Covid-1917/05/21
It’s no surprise that the Covid-19 pandemic has had a vast impact on the residential and commercial property sectors. More people are reported to be looking for homes in the countryside away from crowded cities, the UK high street is seeing the biggest threat to its existence since the 2008 recession, and offices are remaining empty, with the majority of people still working from home.
We have reviewed the most recent findings of the current condition of the residential and commercial property sectors, to provide a detailed analysis of what’s improving across the industry, and what is still set for hardships for investors, landlords, buyers and rental tenants:
What’s set to move in Residential Property?
The recent Bank of England Agents summary for the start of 2021 suggested that the outlook for the housing market has improved since last year, due in part to the extension of the property transaction stamp duty tax holiday in England and Northern Ireland until June. This scheme is likely to encourage sellers to act sooner rather than later to benefit from the saving, particularly as house prices have largely increased.
The Budget in March saw the Chancellor announce a guarantee scheme for mortgage lenders to encourage buyers to take a 95% loan-to-value (LTV) mortgage from April (with a £600,000 price cap), to help people with smaller deposits get on the property ladder. Mortgage lenders therefore expect demand for home loans to remain high.
The March 2021 RICS UK Residential Survey showed sales activity picking up sharply over the month. 42% of respondents cited an increase in new buyer enquiries during March, as well as over 50% reporting an increase in agreed sales - a vast improvement since August 2020.
Rise in sales before end of Stamp Duty holiday
Sales expectations are therefore looking positive across all parts of the UK, with the rise in sales set to be particularly concentrated before the end of the Stamp Duty holiday. 60% of respondents also anticipate house prices to continue to increase over the next 12 months.
In terms of the regional breakdown, house prices are reportedly rising across the UK, with the strongest momentum in the North West, Yorkshire & the Humber, as well as across Northern Ireland, Wales and Scotland.
Strong demand for rental property
Demand for rental property has also remained strong in most parts of the UK, causing rent rates to increase. London is the only region where rents are not expected to rise over the coming year, with projections either flatlining or margining into negative figures for rent values across the capital.
However, a common theme from the survey results is that demand is running ahead of supply, and more new properties, conversions and developments will be needed to balance the market going forward.
What’s in store for Commercial Property?
The appetite for investors in commercial property remains below its pre-pandemic level, in particular for retail premises. With many high-street businesses failing or facing store closures, there is currently a significant over-supply of retail property, causing commercial property values and rents to fall. There were also significant rental arrears reports and loan covenants being breached.
The Q4 2020 RICS UK Commercial Property Survey results portrayed a challenging set of conditions overall, with many parts of the real estate sector still struggling against the economic pressures caused by the pandemic. In fact, the retail sector showed the sharpest decline into vacant premises since the series was formed in 1999. Sadly, twelve-month rental projections also show no sign of improvement across retail.
Increased demand for remote working
Through the pandemic, the availability of leasable office space rose at the strongest rate since the global financial crisis. However, demand for office space in prime locations now appears to be stable, despite widespread reports of businesses expecting to reduce their office footprint because of increased demand for remote working.
In contrast, demand for industrial, distribution and science-related premises continued to be very high, with 41% of respondents reporting an improvement. There were also reports of interest from overseas investors for office or industrial property in prime locations, which is the first positive for this indicator since Q3 2018.
Both rents and capital values are also set to fall sharply across the hotel sector in the coming year, with expectations also firmly negative for student housing. Multi-family housing is showing a marginally positive outlook, while aged care facilities and data centres are anticipated to see solid growth in the year to come.
Bleak outlook for retail
These national trends are also replicated across the regions, with the outlook for the retail sector bleak across all parts of the UK. In particular, the office market in London appears under slightly more pressure than in other parts of the UK. The industrial sector meanwhile continues to strengthen across the UK.
While most respondents (63%) still consider the market to be in a downturn, it may now have reached its plateau, rising from just 7% in Q3 of 2020 to 19% in Q4 of 2020. However, demand continues to fall sharply in both the retail and office markets, with 12% of survey participants noting a decline in buyer enquiries. Expectations remain low across the office sector, with 44% of respondents anticipating a fall in rents for prime office space, and 63% foreseeing a fall in secondary rents over the year to come. Unsurprisingly, incentive rental packages for retail have increased significantly since Q4 of 2020.
Contact the Forge team to see how we can assist you with your residential or commercial property needs to keep you ahead of the curve.