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19th January 2022 by obbwpadmin 0
What lies ahead in 2022?

NEWSLETTER WINTER 2022

What lies ahead in 2022?

Happy New Year to all. We have great expectations for 2022 and see the combination of rapidly rising rents, pent-up buyer demand and extreme limits of stock pointing in one direction as far as the prime London market goes. The return to normalisation of interest rates is something to be aware of needless to say, but the prime market is less sensitive to the cost of finance than the broader mortgage reliant national market. Please do have a read of our thoughts and experiences below.

The Good


The prime London market is at the start of a cyclical recovery. In contrast to the broader national market and, more recently, the country hot spots, until last year the prime London market had shown little signs of recovery from its average 20% fall in values from the 2014/2015 peak.

Pent-up demand is obvious, as was illustrated with the easing of international travel restrictions in Q4 last year which translated into overall transaction levels for 2021 exceeding 2019 and for the over £5M sector reaching levels last seen in 2013.

Prime rents are appreciating rapidly and are back to being well above pre Covid levels. Supply constraints point to continued strong growth in 2022.

It has taken nearly six years for us to say this, but we believe the London market is now a clear ‘buy’ as it comes off a low base with extremely limited supply levels.

 

The Bad


Covid is still with us and will remain so in some guise for quite some time to come.
It is of course hoped that the Omicron variant is a less virulent version and general immunity together with booster vaccines are the start of the final chapter. No doubt we will be flying on planes with face masks and showing vaccine certificates to gain entry to certain events/activities for a while, but this is a small price for a return to normality.

 

The Ugly


Over the past 20 years we have seen interest rates plunge to near zero, in fact below zero in some parts of the world. That is now over. Many will not have experienced interest rates moving in the opposite direction during their adult life. Rising interest rates for the unaware or over-leveraged can be perilous. Successful management of debt is a key part of property investment.

Rates are now rising but so too are rents, but not all property performs as well as the other. The ‘good’, referred to above, can negate and overcome many of the challenges ahead but for those unprepared or unable to adapt, these times could turn ugly.

Opportunity knocks


2022 has the potential to be a key year. Many agents, having enjoyed a surprisingly successful 2021, now complain of a critical lack of stock. Expectations of strong rises in the market are exacerbating the issue as would-be sellers hold back on placing their properties on the market.

Rental demand is unprecedented, particularly at the sub £1,000pw market. Quite often we now do ‘open viewing days’ to manage demand levels. Once international travel normalises, we expect to see a huge surge in activity from buyers. The recovery is likely to be led from the top with the upper end prime market outperforming.

Who is buying?


Domestic demand has underlined just how significant the local market remains. With international travel heavily constrained, the market has been far more heavily reliant on domestic buyers and some of the record prices achieved particularly in the high-profile schemes in W1 and SW1 were with local buyers.

Where there is political tension there tends to be funds looking for safety. Examples of where overseas demand originated from in 2021 (despite travel constraints) were:

  • – Turkey, due to a collapsing currency and increasingly autocratic leadership.
  • – Russia, uncertainty over Putin’s intentions for Ukraine and sanctions that might follow
  • – USA, nervousness of wealth taxes, an increasingly polarised country and a democratic party harbouring a hard left element.
  • – China, as wealth diversification continues to be seen as paramount.

Where and what?


W1 is the beating heart of the prime market, led by Mayfair. The neighbouring areas of Marylebone, Covent Garden and Belgravia are seeing high demand levels with extreme limits of supply. High levels of transactions were achieved at super prime schemes (£5,000psf +) such as One Grosvenor Square, The Old War Office and Chelsea Barracks.
Outside of high-end new build schemes, house sales outperformed flats in traditional prime areas such as Notting Hill, St Johns Wood and Chelsea as outside space was sought. Fringe prime, areas like Wimbledon, Richmond and Hampstead were also strong performers.

Following the 2020 exodus to the country as Covid hit, clear evidence of ‘returnees’ was seen as the rural experience did not suit all.

Acquisitions



 
Looking at the market from a buy-side perspective we are faced with a critical lack of options and a market heavily favouring the seller. Example mandates where we are finding choice extremely limited are as follows:

  • 3 bedroom flat in Chelsea – budget up to £4m
  • 5 bedroom house in Wimbledon – budget up to £3.5m
  • 4 bedroom house in St Johns Wood – budget up to £6m
  • 2 bedroom (and 2 bath) flats in N1, EC1 – budget around £1m
  • Freehold residential blocks (6 units + ) – budget up to £20m

Rentals


With sellers, landlords now hold the upper hand. With our portfolio running at close to 100% occupancy, we listed a number of upcoming properties over the holiday period. The following activity is from the first week of the year:

  • 1 bed flat in Chelsea asking £575pw – Over 50 enquiries, one viewing day held. Agreed at £600pw (previous rent was £540pw)
  • 3 bed house in Kensington £1,350pw – let with zero vacancy between lets with a two year straight commitment (previous rent was £1,225pw)
  • 3 bed flat in Kensington £1,750pw – let as soon as available after refresh following four year let. Asking price offer received (previous rent was £1,440pw)
  • 3 bed flat in Kensington £4,950pw – Currently being refreshed after an eight year let. Asking price offer received (previous rent £4,180pw)

Refurbishments


We continue to be frantically busy and undertaking a broad range of schemes where we are helping clients achieve their objectives and ADDING VALUE. Examples:

  • 2 bed flat in south Kensington – refurbished after having been tenanted long term, completed in December. 45% rental uplift achieved.
  • 2 bed flat in Bayswater – ongoing upgrade of under-performing rental with the objective to turn a last achieved £780pw rent into £1,200pw at a cost of £115k
  • 4 bed house in Chelsea – design phase completed. Planning to be submitted to extend the rear and refurbish throughout.
  • 4 bed house in Battersea – rear extension and complete refurbishment.
  • FH block in South Kensington – feasibility study completed on Grade II building of 6 units. Assessing addition of mansard, rear extension, adding roof terrace/balconies.
  • FH block in St James’s – close to completion of total refurbishment/reconfiguration of Grade II block to be let at record rents!
  • FH block in Marylebone – ongoing feasibility on complete refurbishment of single mixed use Grade II Freehold.

WISHING ALL OUR CLIENTS, CONTACTS AND FRIENDS A VERY HAPPY AND SAFE NEW YEAR.


You can see some of our latest design and build projects at www.obespoke.co.uk

If you would like more information,

do get in touch on +44 (0)20 7349 8920 info@obbard.co.uk

Keep safe!

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.
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