I clearly recall the difficult decision I made in 1979 to give up my rented two-bedroom flat in SW1, for which I paid £8 per week, and buy my first two-bedroom flat in W14 for £20,000. But at least I could afford it, even with the mortgage rate at 17%.
Today it is a very different story. The UK’s commercial and residential property markets are dominated by London’s booming economy and its status as the sanctuary of choice for flight funds from many of the world’s trouble spots, driving demand and prices even higher and putting property out of the reach of many.
While our clients are benefitting from strengthening demand, it is difficult to translate this yet into rising prices outside of London, as buyers remain enthusiastic but still quite rightly cautious about their bottom line.
In many of the regions in which we sell, prices remain static or are falling. We visit high streets across the country lined with blank shop fronts and letting boards. For many businesses, pressure from demands to increase minimum wage levels and the burden of business rates leaves little left over for rent, which is at least negotiable.
The Daily Telegraph recently reported that a one-bedroom flat in SW1 is now about £1m; a family house in the inner suburbs typically £3m; £10m is the celebrity purchase norm, and the penthouse at One Hyde Park, W1, is on the market at £75m with a stamp duty liability of £12m.
One London agent reports a 182% growth in “super rentals” of around £5,000 per week in the three months to 30 June, and even student flats in central London can now cost a parent £20,000 per month.
In contrast, in our current auction brochure you can find a beautiful, ready-to-move-in 11-bedroom mansion in Wales for not much over £1.1m.
The sales and rental markets for property in London, both residential and commercial, clearly dominate, and even distort, the rest of the UK. The cooling in the spring of the London market seems to be over, with prices on the move again. Demand for housing massively outstrips supply, and rents are rocketing.
This is a major political football for all parties, and recently the government has come under fire again for the sluggish rate at which it has been releasing surplus land from the public estate. A skills shortage in the construction sector remains an ongoing obstacle at one end of the supply chain, as does the outlook for rises in the mortgage rate at the other.
But the monitored demand for auction legal packs on any property in London with permission or potential for residential use will easily outstrip any other lot.
However, as auctioneers who market an unusually wide selection of lots, we have this year also seen between 75 and 100 packs go out on each of three rural hostel facilities, and demand seems to be brisk for commercial ground rent investments, which seem immune to economic changes.
Away from the high street, industrial estate investments of whatever quality remain popular in the auction room, because a multi-let estate is seen as having a lower risk and offering a greater opportunity to manage for profit.
The LSH auction team is now one of the few that sit within a major capital markets team inside a large national agency. We can therefore clearly see, and are a part of, the widening divide in a two-tier market, with larger investors fighting over fewer prime, low-yield, lots as they seek a decent-length lease to a secure tenant. This leaves a growing market of smaller investors who can utilise their specialist local knowledge to buy “hands-on” investments at a comfortable double-figure return.
As more once-deemed-reasonable investments cross this divide, the non-prime investor has greater access to better lots –once the territory of the larger property companies. And the auction room is the best route into this market.
The launch this month of the LSH online auction is intended to put the market for larger and more expensive properties on a much wider scale.
Simon Riggall is a director and auctioneer at Lambert Smith Hampton
