Prime Central London – Q1 2022

 

Two years on from the first lockdown we had hoped that 2022 would bring greater stability, allowing the much-anticipated PCL recovery to progress. Sadly, this hasn’t come to pass, with the war in Ukraine, the ongoing impact of Covid-19 and concerns over the rising cost of living all preying on the minds of households. Yet despite a far from certain year ahead the PCL market has again proved resilient.”

We still expect PCL to be one of the best performing markets in 2022, as the resurgence of the city continues.  However, overseas buyers, the return of whom we are expecting to trigger a new wave of activity and price growth in PCL, may take a little longer than hoped to return.

The PCL lettings market starts 2022 in a very different position. In Q1 last year we had seen rents fall by more than 10% annually and supply levels were still climbing. But a year on and rents are 15% higher than in Q1 2021 and now exceed their pre-pandemic peak. But there are signs the market is settling and we anticipate annual growth in rents will have peaked in Q1. But with supply still below historic levels there could be room for further increases in the coming months too.

PCL Sales

  • The JLL PCL Sales Index recorded a 3.3% annual increase in achieved prices in Q1 2022, with prices up 0.6% on Q4 2021.
  • Achieved prices now 4.7% higher than pre-pandemic in Q1 2020.
  • 10% fall in properties on the market now compared with the quarter end in Q1 2021.

There were high hopes for the PCL market at the start of 2020, with a flurry of activity prior to the first lockdown in March. Now, two years on, PCL is again seeing activity increase, although delays in overseas buyers returning to the market may mean the recovery is more muted than we’d hope in the short term.

In Q1 2022 PCL recorded a 7% annual increase in sales according to LonRes, making the first quarter the busiest Q1 for five years. Activity was strongest between £2million and £5 million, with sales up 25% on Q1 2021. There were fewer sales at the top end, with homes sold for £5 million or more down 10% on the same three months a year ago.  As Londoners return to the office, we have seen demand for flats rise too, with the number of flats sold in the first three months of 2022 rising 13% annually compared with an 11% fall in the number of houses.

Prices are rising, albeit with central London yet to experience the double-digit growth seen outside the capital over the last 12 months. The Q1 2022 JLL PCL Sales Index recorded a 3.3% annual increase in achieved prices. Prices paid in Q1 2022 now 4.7% higher than those achieved pre-pandemic in Q1 2020.

Stock levels have fallen this year, with the number of new instructions not keeping pace with sales. At the end of Q1 2022 there were 10% fewer properties on the market compared with the same point a year ago. Albeit with available stock levels remaining 14% higher than in March 2019 and 16% higher than March 2020.

As restrictions were lifted last year, we had hoped the much-lauded return of the overseas buyer would begin in Q1 2022. But with the uncertainty surrounding the war in Ukraine and further Covid restrictions in Asia it appears we’ll be waiting a little longer.  Although some overseas buyers are returning to the market, demand continues to be predominantly domestic.

For overseas buyers re-entering the PCL market, combining exchange rate fluctuations with PCL price falls still makes a compelling case for investment. Comparing prices paid in US dollars shows buyers in Q1 2022 are paying, on average, 26% less in dollars than at the peak of the market in 2014. Chinese buyers could save an average of 22%, with those purchasing in Euros paying 14% less for PCL homes. For domestic buyers savings are more modest at 7%.

PCL Lettings

  • The JLL PCL Rental Index recorded a 15.0% annual increase in achieved rents in Q1 2022, the highest annual rise for over a decade.
  • This follows a 10.4% annual fall a year ago in Q1 2021, when we saw achieved rents bottom out across PCL.
  • Achieved rents are now 3.1% higher than pre-pandemic in Q1 2020.
  • Stock levels down 71% on March 2021.

The PCL lettings market has made up significant ground over the last 12 months.  Rents, which bottomed out in Q1 2021 have rebounded, now 15.0% higher than they were a year ago. The highest annual growth in achieved rents since Q3 2011. Of course, this is off a low base, with Q1 2021 seeing rents drop 10.4% compared with pre-pandemic levels.  

There has been a trickle of new properties reaching the market. Stock levels are higher than the historic lows we experienced at the end of 2021 but remain significantly below the long run average.  With 71% fewer properties listed compared with the end of the first quarter last year and 59% lower than the 2018 to 2020 Q1 average.

With achieved rents now higher than their pre-lockdown peak, we expect a return to more normal market conditions over the course of the year. Rents rose 1.1% this quarter, down from a 3.7 % quarterly rise in Q4 2021.

Tenants, who a year ago were able to negotiate significant reductions on asking rents, are facing higher rents on renewal. In some case this is meaning tenants are leaving, however many, who see how competitive the market is, are paying more and remaining in situ. JLL data showing an 18% annual increase in the number of renewals across PCL in Q1 2022 compared with Q1 2021.

Marcus Dixon – Director of UK Residential Research