We all know that the last couple of years have been difficult in most industries. The COVID-19 pandemic has affected us all to a greater or lesser extent, and the property market has certainly not been immune to the effects the national restrictions have had on the economy as a whole.
With 2021 drawing to a close, Hari Hirani, B.Sc (Hons) FRICS IRRV MPVAI, one of the Senior Directors at AWH took a moment to review the current state of the property market. With over 40 years of experience, Hari’s expert insights give us a balanced, yet optimistic view of what 2022 could bring.
Interest Rates & Inflation
As it currently stands, interest rates in the UK that are set at historically low levels and inflation rising above the Bank of England’s target of 2% throughout the second half of the year have continued to put strain on the UK property market. There has been increasing pressure on the Bank of England to counter this drastic rise in the rate of inflation by raising interest rates.
If that occurs, the likely outcome will be that the residential market will flatten as mortgages become more expensive. Having had a boost due to the Stamp Duty Holiday, mortgage lending has fallen since and if the interest rate is raised, we could be in for a very slow start to 2022.
The commercial market will arguably be even more affected than the residential market. Lenders tend to become increasingly risk averse in loaning during times of higher interest rates, particularly to sectors where there is a perceived greater risk, such as the leisure or hospitality industry.
Hari Hirani commented:
“In high street retail stores, where you can buy clothes or shoes, there tends to be a fairly steady flow of customers. When finances start to tighten, then you cancel the holiday or choose not to eat out or visit the pub as often. Lenders have realised this a long time ago and so tend to lend a bit more carefully on the more risky parts of the commercial property market.”
A boost from overseas buyers
However, while domestic lenders might not relish the idea of interest rates going up, it could mean that we see an increased investment from overseas buyers. Central London, and particularly prime property areas such as Kensington, Knightsbridge, Notting Hill, or Mayfair, have long since relied on oversees buyers.
Based on his extensive experience working with overseas investors, Hari Hirani knows that the UK has been seen as a safe haven for foreign buyers from the World over. Even European investors have historically sought to purchase property in London over cities such as Rome, Brussels, Hamburg or Paris. When asked why, the overarching reason often appears to be that legislation in the UK often grants a greater level of monetary protection than exists in other countries.
“Since the 1930’s recession, statistics prove that on average, the value of Residential properties doubles in price approximately every 7-8 years and Commercial property every 10-11 years. That is an estimated return of around 10%. There aren’t many investments that do that!”
The level of overseas investment had slowed down in the last 3 to 4 years, primarily due to uncertainty around Brexit. Investors were simply unsure that if they put the money in and then if the “post-Brexit” government introduces restrictions on taking it out, it would leave many with financial consequences. Buyers are starting to come back and even the rental market has picked up.
While central London is always a prime destination for foreign buyers, large companies, particularly from far-east Asian countries, have recently started to seek investment opportunities in other UK cities, including Manchester, Liverpool and Birmingham, as there is less competition for the available land and buildings. Further, the City Councils of most conurbations, bereft of Government Investment are positively encouraging Overseas Investors.
Increasing demand for modern industrial warehouse units
Moving on from commercial properties, Hari turned his attention to the Industrial market, which has seen a boom during the last 12 to 18 months. This is expected to continue as many “high-tec” industries seek modern warehouses to store items. With more and more businesses moving to an online retail model, the market has grown and that is unlikely to change in the short term.
Older warehousing units are not drawing nearly as much attention as the newer, purpose-built units, unless there is a reasonable amount of land attached to them, which can be re-developed. Warehouses that have surrounding residential areas are of particular interest, because of the permissions that can be obtained for development of commercial or residential properties. Prime examples of such can be seen in Hounslow and Croydon, where development of high-rise private flats or mixed use schemes are now being permitted.
Hari highlighted that:
“The highest demand for warehousing units is in the Heathrow Corridor; which runs roughly from Chiswick through to Reading. It is a very favoured area for the industrial market, alongside areas around motorways. Watford, for example, has developed quite substantially because of the M1/M25 connection.”
Similarly, there is currently a lot of development taking place around the Dartford Bridge and Tunnel.
Leisure market set for rebound?
One of the sectors that has possibly suffered the most due to the COVID-related restrictions put in place by the Government over the last couple of years is the leisure and hospitality sector. The impact on hotels, pubs and leisure complexes has been significant, with demand for properties of this kind falling substantially. Now even for this market, the outlook shows signs of light, where a trend is emerging.
Recent months has seen an increase in the purchase of pubs, especially in suburban London. Of particular interest are those public houses which have land associated with them, as this land can often be used for redevelopment.
While the demand for Hotel properties is slowly seeing a revival, it is unlikely that there will be a significant price increase during 2022. Additionally, prices may even drop again, should any restriction be placed on Hotels and the hospitality sector by the Government.
Thankfully, the easing of Covid related restrictions has allowed other parts of the hospitality industry to grow, as more and more people return to eating out at restaurants, most noticeably the younger generations.
Need some advice?
We realise that there are many other aspects of the property market that have not been covered in this article, including for example, the effect on sporting venues, Night Clubs, Nursing & Care Homes and Shopping Centre complexes.
If you have specific questions or need properly reasoned, researched and reliable advice, why not speak to Hari Hirani or another member of the expert AWH team about any aspect of the UK property market? We would love to hear from you.
Call our team on 0800 071 5517 or email firstname.lastname@example.org.