The state of the property market – September 2021
Almost every day there’s news about the state of the UK property market, not least because COVID-19 has created an unprecedented state of flux in the built environment. What do you need to know? As we begin a series of Real Estate and Construction blogs from the Group’s specialist corporate and commercial law practice, Beyond Corporate, solicitor Zaeem Habib cuts through the noise.
Residential property market
The property market is split into two sectors: residential and commercial. Most often we hear about residential property for the simple reason that it’s the one which affects most people. The general view is that the residential property market is booming – according to Nationwide, UK house prices accelerated in August, with values now 13% higher than before the pandemic.
The building society said that annual house price growth sped up, to 11 percent, with the average home costing £248,857, and that property prices recorded their second largest month-on-month rise in 15 years, up by 2.1 percent. Of interest to some however is that those price increases were uneven across the country with the Halifax reporting the highest increase in Wales with an 11.6 percent increase and lowest increases being in London with 1.3 percent.
The factors driving price increases
The Resolution Foundation suggests the prices will continue to rise because of pandemic related factors such as lower interest rates and changes in preference as to home, which begs the question: how effective was the stamp duty holiday introduced by the government?
Stamp Duty holiday
The Foundation argues that the Stamp Duty holiday introduced to support the housing market at the beginning of the pandemic should have resulted in greater house price increases in areas where the savings would have been greater. This has not been the case and indeed similar house price increases have been seen in the U.S, Canada, Germany, France, and Australia that did not have the benefit of a tax incentive.
Commercial property market
Vacancy rates for offices remain high compared with pre-pandemic levels, with Savills reporting that nine percent of offices remain vacant, up from 5.3 percent in March of 2020. This is a somewhat a muddled view however, as Savills reports that most of the empty space is in older stock and rents in new offices have held.
The Local Data Company reported store closures of 21 percent year on year for H1 2021, but again the picture is muddled. Savills reports that retail parks have six percent vacant floor space, while this can be as high as 17 percent in large town centres. The inference is that the drop in footfall as a result of the pandemic is uneven across the retail sector and this is reflecting in subsequent store closures and vacancies.
Demand for industrial property remains buoyant with the MSCI reporting industrial rental values increasing by 3.2 percent on the previous year to April 2021 – I would therefore suggest the current demand is driven by retail chains switching to in-store sales to online and taking up distribution warehouses.
How you view the state of the commercial property market therefore depends on the sector. Offices and industrial space are doing better, while rentals for the retail sector are somewhat downbeat (although that view is dependent on the location of the retail space).
The view from the Q2 2021 RICS Commercial Property Survey shows that that there is at least optimism, with 56 percent of respondents reporting the market is in upturn.
With the economy opening up again we can hope this will translate into increased uptake for commercial space.