The efficiency of the UK’s vaccination roll-out and the subsequent easing of lockdown restrictions have brought a renewed sense of confidence into London’s Prime Central London (PCL) market. This is most welcome, given how challenging, volatile and uncertain the past 18 months have been.
To date, over 42m people in the UK (approximately 80% of the adult population) have received their first dose of a coronavirus vaccine, while 30m have had both their jabs. Indeed, the rapid progress of the programme has meant that the UK is among the countries with the highest vaccination rates globally. As I will come on to, there are several reasons why this is significant for the PCL market.
First and foremost, the inoculation drive is set to have a positive impact on the UK economy as a whole. This is reflected in the Bank of England’s forecasts for GDP: in May, it upgraded its outlook for UK GDP, predicting growth of 7.25% in 2021, up from its previous estimate in February for growth of 5% this year. The Bank’s significant upward revision is attributed to an anticipated surge in consumer spending and investment activity, with the vaccination roll-out earmarked as a critical factor in both trends.
Has PCL turned a corner?
If the past year has taught us anything, it is how difficult and at times futile it is to make bold assertions about what the future holds. Let us start, then, by evaluating the current state of the property market.
The latest figures by Halifax show a steep climb in house prices, having risen by 9.5% in the year to May 2021. Indeed, the level of annual growth is the highest recorded in seven years, no doubt influenced by the impact of the extension of the stamp duty holiday, shifting housing demands among buyers as a result of the pandemic and the fact low interest rates are making borrowing more affordable.
Yet such indices are often problematic, offering as they do a single snapshot of the entire UK residential property market. The (PCL) market must certainly be viewed in isolation from headlines about sharp nationwide increases in prices.
In reality, the PCL market has faced unprecedented challenges over the past year. The ongoing travel restrictions, which resulted in a marked absence of international buyers, has been felt in the market, which has traditionally been reliant on overseas investment. As we look ahead, the continued success of the UK’s vaccine drive and its impact on the gradual re-opening of travel corridors could prove an important turning point.
Knight Frank’s 2021 Wealth Report suggests that the pandemic-induced residential mini-boom is set to continue throughout the year. Indeed, its global survey reveals that just over a quarter (26%) of ultra-high net-worth individuals (UHNWIs) intend to buy a new home in 2021.
Importantly, the report positions the UK as a likely recipient of international real estate investment this year, given investors’ continued preference for transparent markets with favourable legal systems. This suggests that London will remain a metropolis of choice for the wealthy. Further, the latest Global Financial Centres Index ranks London as the second-best financial centre, behind New York, which underlines its continued attractiveness over leading global cities when it comes to business and commerce.
Pent-up demand continues to build overseas
While the PCL market has been directly impacted by the restricted travel movements of international investors, it is important to consider the pent-up demand that has accumulated overseas during the past year.
Savills recently predicted that investment activity in the year ahead would “become more international” as travelling becomes less restricted. According to its outlook for 2022, on average, 47% of all investment will originate from international investors, of which just under half will come from neighbouring countries.
PCL real estate could be a prime beneficiary of the global pent-up demand that is expected to be released over the next 12 months, with the vaccine programme clearing the way for the re-opening of safe air travel and the return of overseas investors to the London market.
If London can welcome international HNWIs back before other leading destinations for prime real estate investment – the likes of New York, Sydney, Paris, Singapore and Hong Kong, for instance – then it could steal a march in attracting pent-up demand from overseas buyers, which could lead to a surge in transactions. Moreover, once the city itself can open fully, with hospitably, business and cultural venues operating as normal, then the appeal of PCL will naturally be boosted.
Cautious optimism It is a phrase used with increased regularity in 2021. Yet in the PCL sector, the reopening of the economy and the progress of the UK’s vaccine programme are combining to paint a far brighter picture for the Prime Property market in the year to come.
