In the current market where residential transactions across the UK have slowed, the residential market in London is showing few signs of a slowdown with strong rental, transactional and development market activity, according to the report from Colliers International.
In terms of rental activity, London is proving resilient in comparison to the rest of the UK. Demand in the London rental market is driving rental prices higher, especially as supply is low.
According to LSL Property Services, monthly rents in London have risen by 8% since April 2010 and reached £988 in April 2011. With the rental market providing such a robust performance, the buy to let market is beginning to recover. S&P recently reported that conditions ‘appear to be supportive for BTL borrower performance in the medium term’, analysts point out.
However, risk adverse lenders and a lack of available finance is putting pressure on the supply of buy to let properties. S&P also reported that due to a fall in debt servicing ratios, buy to let borrowers have less of a financial cushion to cover mortgage payments.
On the residential sales side, London is outperforming the rest of the UK. The Communities and Local Government House Price Index for March 2011, indicates the largest increase in house prices was in London at 5.6%. The smallest increase was in the East Midlands at 0.9%. The key drivers in the London housing market are a lack of supply, with around 1,300 sales recorded over the quarter in Central London. Stock levels remain constrained because potential vendors are reluctant to sell and have no incentive to do so.
The report says that developers are taking advantage of the changes in planning allowing the conversion from office to residential. There are several big deals in the marketplace where developers have taken advantage of the market downturn to turn a profit on their investment.
For example, Marcus Cooper is seeking planning permission to convert the old QVC UK headquarters at Marco Polo House, which it bought in 2006 for £63 million into a residential led scheme worth £500 million. The same developer received planning permission to redevelop 6-10 Cambridge Terrace and 1-2 Chester Gate, NW1 into a £100 million mansion complex. These properties were purchased for £23.7 million in 2006. It is currently involved in converting British Land’s HQ into residential.
Orion European Real Estate fund has bought a site at City Road Basin, London EC1 and it will be the first residential scheme set up by a private equity fund.
Ballymore is seeking planning permission to build a 41 acre scheme at Minoco Wharf in London. The scheme will include 3,500 homes, a high street and new school and is one of the largest ever planning applications in the capital. And Mountgrange is launching a mezzanine fund dedicated to residential development, a first for the UK market.
With the residential market in London outperforming the rest of the UK it is not surprising to see proactive landlords and developers taking advantage of opportunities in the market, the Colliers report adds.
