Property consultants JLL believes Brexit gloom is overblown, and that a good address is still a safe bet – even as the metropolis redefines what prime central London means
With property in central areas of the capital unaffordable to all but the wealthiest, the boundaries of prime London are becoming ever more elastic.
Where until a few years ago “prime” referred strictly to the golden postcodes of Mayfair, Belgravia, Knightsbridge, Kensington and Chelsea, now desirability and wealth have spread to create ”outer prime” areas that stretch from Wimbledon to Wapping and take in the likes of Fulham, Battersea and the burgeoning South Bank.
”New developments are redefining once overlooked areas and setting new price levels at a local level”
JLL forecasts house prices in prime central London will rise by an average of 12.5pc over the next five years. This compares with UK average house price growth of 2.5pc from 2018-22.
High-profile new developments are redefining once overlooked areas and setting new price levels locally – Manhattan Loft Gardens in Stratford, for example, is part of a new east London cultural hub.
Former industrial landscapes, including King’s Cross and Greenwich Peninsula, are magnets for today’s aspirational workers. So, too, is the City Road area around Old Street, once known for little more than its vast, grey roundabout.
In recent years it has carved a new identity as a dynamic, tech hub and found a following among young financiers who wish to be within walking distance of their City offices.
The walkability factor has, in itself, been the driver for the growth of the City Fringe, where high-rise new luxury apartment blocks in the likes of Aldgate and Shoreditch sit cheek by jowl with some of London’s most historic streets and culturally diverse communities.
“The city is moving outwards and eastwards in particular, with 50pc of all new homes under construction in the eastern belt, including Canary Wharf and south-east London,” says Nick Whitten, head of research at JLL.
“It’s a value story. New homes in those areas are more affordable than in the north or west of London, but the market is also moving faster where there is greater affordability in buying or renting, which means we expect to see greater growth potential in these areas.”
”Crucial to the dynamics of London’s property market is the continuing under-supply of new homes”
Research by JLL into London’s biggest regeneration areas shows that price growth there outperforms the London average by 40pc over five years.
Where new areas are being created from scratch (or, at least, urban scrubland), the arrival of a major company or cultural institutions – whether it’s the English National Ballet in London City Island or the US embassy and Facebook in Nine Elms – builds confidence that developers and investors need to follow suit.
The Brexit vote and the raising of stamp duty thresholds in 2014 – and again for buyers of investment properties or second homes in 2016 – slowed many areas of the London market.
Uncertainty, in the case of Brexit, and the reluctance to lose six- (or even seven-) figure sums in stamp duty prevent many from buying and selling.
Instead, a buoyant prime and super-prime rental market has emerged, while would-be buyers bide their time until Brexit becomes clear.
JLL expects rents to rise steadily by around 2.5pc per annum from 2020-22 period, supported by the growing trend of renting by choice.
But also crucial to the dynamics of London’s market is the under-supply of new homes, with only around one-third of the 66,000 that are needed built each year.
“London’s population has been growing by 100,000 a year for the past two decades and that trend is expected to continue for the next two decades. The severe shortage of supply creates issues, but for investors it underpins value,” says Mr Whitten.
Similarly important to London investors is the arrival of Crossrail later this year. Much of the potential uplift in value has already been factored into house prices in areas around new stations on the Elizabeth Line, with those starting from a low base such as Woolwich being among the greatest beneficiaries.
“But the true value won’t be experienced until the line is in operation,” says Mr Whitten. “That’s particularly true for the rental market.
“Investors buy into an area when it has potential, but renters wait until the infrastructure is up and running. Crossrail will bring an additional 1.5 million people within a 45-minute journey time of London, making many areas far more commutable. That’s going to have a big effect on rental demand in these areas.”
JLL believes that many of the question marks over London’s stature in the world in the midst of Brexit uncertainty are overblown.
A strong economy, especially post-2019, will continue to drive housing demand and push up prices. Demand from the international wealthy will continue, while overseas investors are unlikely to shy away from London because of Brexit.
London, says JLL, will remain a key and cosmopolitan global city, a cultural icon and a great place to do business.