01 June 2023

Market Roundup - May 2023

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May Roundup1

As Covid has receded in the rear-view mirror, so has much of the rush to the country and the urge to get into the market at any cost. Inflation and higher interest rates are having a predictable effect on animal spirits. But it hasn’t gone back to the status quo ante. People - bosses particularly - have learnt (if they ever forgot) that offices are essential if you are trying to build teams, and for the young, the pleasures of working from a shared basement flat are limited to say the least. TWAT - Tuesday, Wednesday and Thursday - is now the new normal for many, but disastrous for the likes of Pret or City restaurants. Footfall in many shopping areas is still down. Tourism has recovered - but the number of Chinese visitors is still only at 26% of its pre-Covid levels, not helped by the Treasury own-goal of making the UK the only country in Europe with no VAT holiday on tourist shopping. As well as work, the pleasures of a big city are being rediscovered: a commuter village can be lovely - but less so in January and when you want to go to the theatre or eat well.

All this is being reflected in the rental market at all levels in London whether that is finding a flat to share for your children (now nearly impossible without parental help) or a smart flat or house in prime central London. In just the last year, rental levels of the latter in the better areas of London are up nearly 30%. A lot of this is yet another example of unintended consequences as the Treasury imposed death by a thousand cuts on buy-to-let landlords starting with the withdrawal of allowing interest to be deducted as a cost for tax purposes. If it was bad for landlords, it’s about to get worse in the short term with the Government’s Renter’s Reform Bill which is likely to limit how often landlords can hike rents, while making it more difficult to evict unwanted tenants. Over the longer term, Labour have already said they will make three year tenancies the norm and put an inflationary cap on rents. Interest rate rises are just the latest nail in the coffin for landlords. As they retreat from the market it has had a predictable effect on rents. The victim in all this is, ironically, the tenant.

A future Labour government is already casting a shadow over the property market - particularly the top end which is so dependent on foreign buyers. They have already floated an increased stamp duty surcharge on top of the existing 2% and restricting foreign buyers to 50% of any new development. Non-doms are certainly in their sights. If overseas buyers are feeling hard done by, spare a thought for overseas buyer in Singapore where the stamp duty is due to double from 30% to 60%.

London though, overall, is back. There have been record prices paid for the very best and in developments like 1 and 20 Grosvenor Square and above the new Peninsula Hotel on Hyde Park Corner, between five and ten thousand pounds per square foot has become the new normal.

New developments are still coming thick onto the market and are selling well. A good example of this is Park Modern that sits on the Bayswater Road at the top of Queensway. This has views over Kensington Gardens (and quite a lot of road noise) but is selling at £5000 per square foot. Some of this is in anticipation of the changes in Queensway - which currently no one in the Daily Mail would describe as a ‘top people’s destination’. The rebuilding of Whitleys and the future redevelopment of the shops opposite as well as the gradual buying in and refurbishment of the retail running towards the Bayswater Road will surely change the character of Queensway - but these things take time. Five years?

Just down the road from Queensway is the Lancasters, a top-quality development done by Northacre over ten years ago. It was the first large-scale up-market development in Bayswater with park views and it sold well. Unfortunately, it wasn’t so well built - and the original facade has been found to be detaching itself from the entirely new building behind it. As it was out of warranty, the unfortunate owners of flats there are sitting behind scaffolding and paying service charges running into hundreds of thousands. So much for the hassle-free advantages of a new-build.

Over much of central London, new garden and pedestrian areas are emerging. The Strand, where it bifurcates around the churches of St Mary-le-Strand and St Clement Danes (the RAF church) is now pedestrianised - and it’s hard to imagine now what a traffic-choked artery it once was.

The whole length of Sloane Street from Sloane Square to Knightsbridge is about to have new, wider pavements, trees, planting boxes and seating which should seal its status as one of the two top retail areas of London. It’s a one-way traffic nightmare at the moment but will be finished at the end of next year.

Battersea Power Station is now open and much of the retail operating. The anchor tenant, Apple, is due to move in this year and the roughly 1,500 office workers should make a real difference to the mid-week footfall and feel of the site. It will be interesting to see what difference such a big new retail draw in central London will make. It is very much an island site fed by tube spur-lines. Will it suck business out of places like the Northcote Road in Battersea and Chelsea, or will it pull in entirely new shoppers and diners from wider London and outside? The retail experience must be more pleasant there than in Oxford Street - which now seems to be packed with American-style candy shops - where the words laundering and money are frequently used together.

We have mentioned it before, but there is now no more new supply of larger flats and houses coming to the market in Prime Central London. Both Westminster and Kensington and Chelsea have imposed a 1,700 sq ft limit on any new development - the size of a decent two-bedroom flat. There are still plenty of larger flats and houses in the pipeline with planning permission obtained before these limits were imposed - but the effects of such a restriction in supply will be felt over the medium to long term.

In the country, the Covid buying spasm has receded somewhat as buyers have reconsidered whether country life is for them and many sellers have priced themselves out of the market. As always, the exceptional every now and then beats the trend - which only feeds the delusions of the more ordinary. It is still though, a seller’s market for the best.

Farms and land generally always surprise, particularly when the prospects for farming are so dire with the upcoming death of the subsidy regime and its replacement by ELMS which is likely to be crumbs replacing bread for most farmers. Farms are, of course, great for Inheritance Tax planning - but as many have found out in previous tax mitigation schemes - they are not so good if the losses, over time, eat away at any tax benefits. And land prices? It depends on how much - well illustrated here with average prices per acre provided by an agent specialising in land and farms.

   10+ acres - £11,600 per acre

   1-10 acres - £28,997 per acre

   Under an acre - £121,000 per acre

As any viewer of Clarkson’s Farm will have noted, the rural planning regime is a mess with massive backlogs and overstretched planning departments causing real economic harm. It is likely that a future Labour government will turn its baleful eye on recalcitrant NIMBY councils to force through much bigger housing quotas. They have already said that they will allow more building on Green Belt.

Does this all sound gloomy? Considering where we were three years ago, things really aren’t that bad, though the interest rate rises - probably better called normalisation - and inflation are now seeping into all corners of the economy from failing banks to food banks. A Labour government is now looking like a racing certainty and that prospect always causes the property market, particularly the top end, to twitch. But if the debacle of the Truss administration showed anything it is that the freedom of action of any heavily indebted government is severely restricted - whether that is of a left or right persuasion. Bull or bear? Grinding is more likely.

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