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Commercial and residential property markets stall in London, while private renters see increases

New analysis published today by Centre for London reveals that both the commercial and residential property markets have stalled, with lower take-up of office space, subdued house price growth and a sharp drop in housing completions, whereas the city’s rental market has seen increases in rents paid.

The analysis, published in The London Intelligence, found that:

  • Take-up of commercial property in London and active demand (the total space currently sought by companies) both declined by 14 per cent in the first quarter of 2019 when compared to the previous year.
  • House prices fell by 1.4 per cent in December 2018 when compared to the previous year, a fourth consecutive month of falling prices. This contrasted with declining, but still positive growth in the rest of England and Wales.
  • The picture of house prices is uneven across the capital. Whereas high prices in inner West London fell by almost 11 per cent in the year to December 2018, prices elsewhere in the capital began to rise – with the strongest growth experienced in outer North West and West London.

The continued political uncertainty may be leading to a market slump, with house prices on a downward trajectory since a sharp drop in April 2018.

This could be good news for those looking to get a foot on the property ladder. The subdued house price growth, alongside lower unemployment and rising earnings has boosted the number of first-time buyers in the capital.

Political and market uncertainty has also led to a slowdown in residential property transactions and construction activity, as developers take a more cautious attitude to their pipeline. The analysis found:

  • Transaction volumes continued to fall, dropping 12 per cent in the final three months of 2018, compared to the previous year.
  • Flats experienced the sharpest fall in transactions, down almost 20 per cent in the final quarter of 2018 compared to the previous year.
  • There’s been a slowdown in planning activity, with a 12 per cent drop in planning application decisions in the year to Q4 2018.
  • New build housing completions have also suffered a large drop, which just 18,500 completions in the 2018, a 32 per cent decline on the previous year. New build starts remained around 17,500 over the same period – in line with the previous two years.

Market data indicates that whereas residential sales and house prices have stalled, there have been modest increases in the city’s rental market, as new supply into the market slows.

According to Dataloft figures used in The London Intelligence, average rents paid in London increased by 2.6 per cent in the first quarter of 2019 compared to the previous years. However, rents for terraced houses and smaller flats experienced the fastest growth, compared to larger properties which saw rents fall.

While rental price change varies, the highest growth in rental prices paid were in Zones 1 and 2, with an annualised increase of 3.3 and 2.9 percent respectively in the first quarter of 2019, though increases were also experienced in Zones 5 and 6, including Croydon, Bexley and Sutton – as some renters look further afield in search of better value for money.

Silviya Barrett, Research Manager at Centre for London said:

“With the scheduled date of Britain’s departure from the European Union delayed, continued political uncertainty seems to be denting confidence; leading to a slump in both the commercial and residential property markets.

“Businesses are less active in seeking out office space, while homeowners are delaying putting their properties on the market. There has also been a slowdown in the supply of new housing and commercial space, as developers are more cautious about the subdued market conditions.

“Lower house prices in some areas of the city has enabled more Londoners to buy their first home, but reduced supply is leading to increased rent levels, putting pressure on those who cannot afford to get on the ladder.

“With developers being ever more cautious and local councils coping with reduced planning budgets, questions about how London’s housing needs and higher delivery targets will be met, become even more urgent.”

ENDS

Notes to Editors:

  • Centre for London is the capital’s dedicated think tank and a charity.

About the Data:

  • Commercial Property: The commercial property figures are sourced from JLL’s Central London Office Market Report. Vacancy rates refer to the proportion of floor space that is unoccupied. Active demand relates to serious interest in commercial floor space, while take-up is the actual amount that is purchased or leased. More information can be found here.
  • House Prices and Transactions: From LSL/Acadata England & Wales House Price Index. It uses actual transaction volumes and prices based on Land Registry data, and is updated monthly. The most recent monthly price (March 2018) accounts for c. 38 per cent of transactions, two months previously c. 88 per cent, and almost all for three months previously. The most recent monthly price has not been used in this issue due to the incompleteness of the data. House prices are mix and seasonally adjusted at the London level, but not sub-regional level, or with property type changes.
  • Rental Market Data: Supplied by Dataloft, based on rent paid data supplied under contract from leading tenant referencing companies. The large and growing dataset of rent-paid transactions includes detailed information on both tenants and tenancies. It includes four years of historic data with a monthly addition of up to 40,000 new records. The data has been rigorously collected by Rent4Sure and Van Mildert. The dataset represents around 24 per cent of all rental transactions, with over 30 per cent in some regions and extends across England and Wales.
  • Planning Decisions: Based on figures produced by the Ministry of Housing, Communities and Local Government, and published in table P135 here, sourced from General Development Control (District) PS1/PS2 returns.
  • New build starts and completions: Figures are sourced from administrative data as reported to the Ministry of Housing, Communities and Local Government. Starts and completion statistics for new build dwellings are taken from Table 253a from here.