LONDON
MARKET COMMENT
Double shortage
Increasing capital values and rents
suggest an absolute shortage of stock
With sales across greater London up by over 25% and buyers
competing strongly, the summer brought a period of quiet
only because of lack of stock. Prices, especially at the
top end, have grown so strongly that some have questioned
the extent to which such growth can continue. Those who
believe it can, point to bullish forecasts for the City
right through to the end of 2007 and reports that, following
large rises in ‘high flyer’ salaries last year,
middle managers and support staff too, are enjoying significant
pay increases. This is feeding confidence in the mainstream
market, generating demand across the board, not just in
central and prime property.
What is unusual about the current market though, is that
rents, too, are growing. Ordinarily, sharply rising capital
values drain the rental sector of demand. Why is this
not happening now? The answer, from an increasing number
of our would-be owners, is that they simply cannot find
a suitable house to buy – so they look to rent instead.
Unfortunately, this is coinciding with a resurgence in
demand from the corporate sector (including more from
the US than since 2001), with the result that it has been
getting hard to find a property to rent, too. Finally,
another group is reaching a ‘critical mass’,
in demand terms. These are owners, already living in London,
who want to move but have repeatedly had their offers
passed over in favour of buyers with no dependent sale.
To put themselves into a similarly advantageous position,
they decide to sell and rent until they find – and
secure – the house they want.
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In the past, whenever those looking to rent or buy complained
of there being ‘nothing to look at’, it tended
to mean ‘nothing to look at that I can afford’.
(This has, needless to say, been the standard position
of Londoners on low wages for many years.) But, faced
with shortages at every level, in both markets, even the
very well heeled are now finding their options curtailed.
Glancing at some of the relevant statistics, this is,
perhaps, not surprising. According to the Greater London
Authority, the population of the capital has grown by
190,000 in the last two years, whilst employment, in inner
London alone, is set to grow by approximately 500,000
within less than a decade. Putting this into context,
total City employment is already at a record high of 335,700*,
having previously peaked during the late 90s internet
boom. With these figures and the experience of many of
our would-be buyers and tenants in mind, it appears quite
possible that London’s success has attracted extra
people to the extent that the physical shortage of residential
property has become a real and probably chronic problem.
If so, the upside for owners – and especially landlords
– is that values can only go one way.
* CEBR
Top: Weybridge £12,500 pcm
Above from top down:
Barnes Common SW13, £1.595 million guide
Belgravia SW1, £5,500 pw
Chelsea SW3, £1.695 million guide
Left top: Albert Embankment SE1, £1.95 million guide
Left bottom: Pimlico SW1, £610,000 |
