The Survival of the UK Real Estate Market
The UK real estate market has been greatly affected by the coronavirus pandemic. Despite worries of a housing market crash, the residential housing market has seen the opposite effect, with the coronavirus pandemic causing many people to reassess their living arrangements and place a higher priority on outdoor space.
However, growth seen in the residential property market has not been mirrored by commercial property, with retail, hotels and hospitality having to innovate and adapt their use of space to survive.
Recent Months of the UK Real Estate Market in 2021
According to Nationwide, UK house prices grew by 2.1% in April 2021. This was the strongest month-on-month increase since February 2004 and puts annual UK house price growth at 7.1%. It is likely that this increase in house prices will reach double digits during the summer as demand remains strong, with house buyers seeking to take advantage of the Stamp Duty Land Tax holiday ending soon.
Despite the increase in demand, the supply of homes for sale has not kept pace and instructions to sell have been 5% lower than sales agreed since the start of the year. This continuing imbalance is expected to continue to fuel price growth over the next few months.
However, at this time people are prepared to pay the higher prices. Completed transaction numbers hit a post-global financial crisis high with over 180,000 transactions completed in March 2021 and sales agreed in April 2021 were 55% above the 2017-19 average. Sales agreed have been particularly strong where buyers benefit from the maximum £15,000 saving on SDLT. This part of the market is mostly mortgaged home movers, whose numbers in February were 73% higher than the 2018-20 average.
The high activity levels in the market have created pressure on Conveyancers in London and around the UK, with a much greater caseload. We are yet to see how this will change when the SDLT deadline passes.
Residential Property Outlook
Residential property has been the surprise outperformer during the pandemic, with fears of a repeat of 2008’s housing market collapse proving unwarranted. Investment levels into institutional rented property have also been sustained and will hit new records throughout the next few years. Fiscal support for the owner-occupied market has maintained prices and transaction levels, though the risk of rising unemployment, following the withdrawal of the UK government’s Coronavirus Job Retention Scheme, means we remain cautious about the outlook across the residential sector as a whole.
Will the Economy Recover?
The UK’s two national lockdowns mean that the UK economy is now not expected to recover to pre-pandemic size until at least mid-2022. We expect a consumer-driven recovery, with retail sales already having recovered quite strongly. A combination of low interest rates, low inflation, a powerful fiscal stimulus and the resolution of Brexit uncertainty will support recovery. While the residential property sector face uncertainty through the remainder of 2021, we anticipate a good medium-term recovery.
A Rough Ride for Commercial Property
COVID-19 has savaged an already-weak UK high street suffering from rising costs, a lack of innovation and pressure from the online retail market. Although some retail formats have proven resilient (supermarkets, retail parks and discount outlets), the retail property sector will now be forced to think very radically indeed about its future. The repositioning of many assets to mixed use seems likely.
As with retail, the UK hotel and hospitality sectors have had a very rough ride in 2020. Necessity has been the mother of invention, with operators and landlords forced into much closer collaboration in order to survive. Innovation will need to proceed at pace to adapt to the weaker economic outlook and ferocious competition and to maximise efficient use of commercial real estate.