Central London residential rents slump due to lockdown, WFH

London

THE lockdown and surge in working from home has caused a slump in central London residential rents. In contrast, rentals have risen in towns and villages outside the British capital. The big question is what will be "the new normal" after the pandemic ends, as recent trends in the London and UK housing market will have an impact on British consumption and investment.

Estate agents Savills estimated that the value of UK houses and apartments rose by £380 billion (S$706.5 billion) - or 5 per cent - last year to a record high of £7.56 trillion. This is more than four times the value of all companies in the FTSE100.

Due to the shift from apartments to larger, more expensive houses with gardens, London's property value increased by 6 per cent to £1.77 trillion, said Savills.

Chancellor of the Exchequer Rishi Sunak wants to boost house building and sales to help lift the economy. In the latest Budget, he extended a stamp duty holiday on first-time buyer cheaper properties and allowed a 95 per cent government guarantee on mortgages up to £600,000.

In the past year, stressed landlords had to cope with lockdowns and the absence of local and foreign students.

Average central London rentals slid by 20.4 per cent to £43 per square foot, according to estimates from Lonres, a firm that gleans data from estate agents and other sources.

Marcus Dixon, the chief economist of Lonres, predicts a sharp rental recovery from the second half of the year when lockdowns will hopefully end.

Savills estimated that, over the year, average London rentals will only rise by 1.5 per cent and then rise by 5.5 per cent in 2022.

"Local employees are working from home and foreigners are not relocating to London because of Covid-19, so the demand for central London rentals has fallen," said Mr Dixon.

"More property is available and since supply exceeds demand, landlords have been forced to negotiate and slash rentals."

People will return after the pandemic, he said, and when they do, there could be a sharp upturn in rents. But they will still spend a proportion of the week working from home. For those who cannot afford a small flat near the office, Airbnb shared bookings could be a possibility, he said.

Estate agents from Hamptons estimated that rents in outer London rose by 5.3 per cent, and in south-east England by 10.6 per cent as tenants have been seeking larger homes with gardens.

In 2020, the asking prices for inner and outer London flats were up by 1.7 per cent and 5.6 per cent respectively, said data company TwentyCi.

Aneisha Beveridge of Hamptons International estimated that some 23 per cent of the buyers it brokered last year were from Asia. Hong Kong buyers accounted for 8 per cent of total demand.

Until recently, there was little evidence of purchases from Singapore, said Edward Lewis, head of Savills residential development sales.

But there are signs of interest. For instance, UOB's One Bishopsgate Plaza in the City of London is offering hotel accommodation and 160 apartments. Knight Frank is offering a two-bedroom flat there for £1.8 million.

In the final three months of 2020, flats accounted for 60 per cent of all sales in central London, down 9 per cent on the previous year, said Ms Beveridge.