Demand keeping prime markets in the East of London more buoyant than in central areas
Proximity to the London’s main financial districts is driving demand for prime property in the East of the city, particularly Canary Wharf and Wapping which are becoming sought after by prime property buyers.
People who work in the area also want to live there and developers have sought to meet this demand with a number of new build, high rise developments, according to a new analysis report.
In Wapping deserted warehouses are being transformed into luxury flats and these kind of new developments are having a positive impact on the surrounding housing stock already available in the area, says the report from international real estate firm Savills.
It shows that in the year to July 2016, the average sale price in Wapping was £740,000, some 47% higher than nearby Canary Wharf at just over £500,000, according to data from the Land Registry. While Wapping commands a premium in comparison to the wider borough average, property prices in Canary Wharf are in line with those for Tower Hamlets as a whole.
In the prime markets, the average price per square foot values for second hand properties are £750 and £1,000 for Canary Wharf and Wapping respectively, both offering value when compared to the wider prime London average of £1,300.
The report explains that as a result of strong levels of demand and limited stock available in the area, prices in the prime market of Wapping have increased by 45% in the period since the financial crisis, outperforming the 32% average growth seen in wider prime London.
Canary Wharf has seen more subdued house price growth of 20% over the same period due to the high level of new build stock which was brought to the market in the run up to and immediately after the credit crunch.
However, more recently, as a result of stamp duty reforms introduced in late 2014, the introduction of a new stamp duty surcharge for additional homes in April 2016 and the uncertainty surrounding the European Union referendum, price growth in both prime districts has been more subdued.
Over the period since the peak of September 2014, prices have fallen by 4.4% in Wapping whilst growth in Canary Wharf has been constrained to 1.8%. Both areas, however, have continued to outperform the prime central London market which has seen much more substantial falls over the same period. Savills says that this is because values are lower, so the higher rates of stamp duty have been less of a burden.
A breakdown of the figures mask some variation across different price bands. In the market for properties worth over £1 million in both Canary Wharf and Wapping, prices have fallen by around 8%, in an adjustment to the new stamp duty rates, whilst properties worth less than £1 million have experienced average price growth of 2.8% over the same period.
Rental values in Wapping are only 11% higher than those in Canary Wharf, a stark contrast to the variation in their respective sales values. The median monthly rent is £2,000 in Wapping and £1,800 in Canary Wharf, according to Rightmove, both offering a significant discount in comparison to their neighbouring borough, the City of London, where monthly rental values are on average £2,200.
Prime rental growth in Canary Wharf and Wapping has outperformed the rest of prime London since the previous peak of the market in 2007/2008, with growth totalling 12% in both areas compared to small falls across the capital and the report says that this is partly due to shrinking corporate budgets over recent years which means these locations are more attractive for relocating employees.
More recently, rental growth in these two prime markets has slowed with some falls in value being seen in Canary Wharf. This is a result of high levels of new build stock simultaneously being brought to the market.
The proximity of Canary Wharf and Wapping to London’s two main financial districts of The City and Canary Wharf itself drives demand for prime property across both areas, from owner occupiers and investors alike. The report says this is reflected by the fact that financial and insurance services employees have accounted for almost three quarters of all buyers and over half of all tenants in the prime markets over the past two years.
International residents form an important part of the prime markets of Canary Wharf with the majority of both buyers and tenants over the past two years coming from overseas. However, so far in 2016, there has been an increase in the proportion of domestic buyers, a trend which has also been seen across the wider prime London market.
The average gross yield for prime property in Canary Wharf is over 4%, as a result of comparatively low capital values but competitive rents, making it particularly popular for investors. Indeed, 39% of buyers in prime Canary Wharf over the past two years have bought for investment reasons.
Although on a smaller scale, investors still play an important role in the prime market of Wapping, accounting for a quarter of all buyers over the past two years. More recently, however, there has been an increase in the proportion of owner occupiers in the area.
Canary Wharf also has a particular appeal to younger residents, partly due to the value on offer but also because the area is seen to provide a more contemporary lifestyle than other, more established prime London markets. As a result, almost half of all prime tenants and a fifth of prime buyers since 2014 have been aged below 30.