2015 Residential Forecasts – London Markets
13 November 2014
Prime Central London (PCL) forecast: -2% to +1%
Overall contributing forces: The strength of sterling will continue to play a major role in dictating how residential property in Prime Central London will perform during 2015.
Relatively minor fluctuations in our currency, coupled with the possible increased taxation of higher value homes may lead to the overall attractiveness of PCL to international investors decreasing when viewed alongside other major international cities.
Areas of interest: The coming year should provide clearer timescales and plans regarding major infrastructure improvements within London. Announcements regarding Crossrail 2, HS2 and the redevelopment of the area in and around Euston Station will ensure that capital value movements in neighbouring areas such as Fitzrovia, Marylebone, and the Nash terraces surrounding Regents Park out-perform those of PCL as a whole. This out-performance will be compounded by a decrease in available stock, as owners hold on to assets that they perceive will appreciate yet further over the medium term.
Outer Prime London forecast: 0% to +3%
Overall contributing forces: The timing and speed at which interest rates increase will play an important role in the performance of the Outer Prime London residential market during 2015. Whilst it is expected that Bank of England base rates will start to rise no earlier than Q2, and reach no higher than 1.0% by the end of the year, the effect rises will have on wider market sentiment remain uncertain. Employment and remuneration levels in both the Financial Services and TMT (Technology, Media & Telecommunications) sectors will also play a key role. The out-performance of the UK economy when compared to the Eurozone should ensure a steady flow of overseas workers from these employment sectors help to underpin sales and lettings demand.
Areas of interest: Again, we see infrastructural announcements as major drivers behind individual market spikes during 2015. The area surrounding Clapham Junction could benefit from a double dose of positive news, with Crossrail 2 plans confirmed and also a possible announcement regarding the further expansion of the planned Northern Line extension. Currently, there are only plans to extend the line to a new station at the Battersea Power Station development, although it is believed that the onward route to Clapham Junction is safeguarded. Should this additional extension proceed, Clapham Junction would become a major transport hub south of the river.
Mainstream London Market: +1% to +4%
Comment: We forecast residential areas to the North and East of London’s Tech Belt to perform particularly well as employment levels and salaries in London’s booming TMT sector continue to swell. Investor demand is also expected to increase in the mainstream London market as flattening capital value gains focus investors thoughts towards the higher rental yields on offer in markets outside of both prime and outer prime markets.
New build developments that have overlooked the need to build communities as well as homes may suffer from a severe decrease in both second hand buyer & tenant demand. Investors in these developments may already be experiencing lower than expected rental returns and may also find it difficult to achieve the price paid should they need to exit. We don’t expect potential paper losses on these developments to be realised though, as a vast majority of investors will chose to hold over longer periods. However, developments with a strong focus on the public realm and active communal areas will continue to prove popular, with investors benefitting from strong rental demand.
Carter Jonas 2015 Residential Forecasts – Prime Regional Markets
Town forecast: +4% to +7%
Comment: Although demand levels in the national mainstream market continue to cool, we expect demand to remain strong within desirable cathedral cities and market towns such as York and Cambridge as the trend towards urban living gathers pace. The growth and relocation of a number of blue chip companies to Cambridge continues to provide large numbers of knowledge intensive jobs to the area, ensuring that good stock in the prime town market remains popular. The health of these two markets can be highlighted by the fact that current transaction volumes are exceeding those of the pre-crash market.
Country forecast: +2% to +5%
Comment: Although good quality stock and transaction volumes remain low in the national country market, our agents report steady demand for good quality product, not requiring work. On the other hand, properties requiring extensive renovation works appear to be proving less popular as the nations love for carrying out renovation works subsides. Location continues to be an important factor for buyers, with more remote properties experiencing limited interest, whereas properties within a relatively short commute of an urban hub remain popular. With this in mind we expect modest gains in areas surrounding urban hubs and prices static in more remote locations.