London’s reputation as a financial hub has helped prices for the city’s prime property to outstrip the UK average. Experts say these disparities have become entrenched, with property performance determined by distinctions including geography and grade. See the following article from Property Wire for more on this.
High quality residential property in the best locations will outperform the rest of the UK real estate sectors in the next five years, it is predicted.
There will be an increasingly bigger division between the sectors with prime central London house prices expected to rise by 33% compared to a UK average of 12%, according to research from Savills.
The best properties, referred to as grade A stock, will outperform the average by 5% over the next five years, while grade C will underperform by the same margin, a difference of 10% between the different types of property in the same location, it says in its 2011 house price forecast.
The company is sticking to its prognosis, first published over a year ago, that average, mainstream UK property prices will experience a second slip. But, they say, never have there been bigger differences in the outlook for the best properties versus the rest and for London and the South of England versus the North.
Mainstream values are now expected to fall by a total of 7.3% between the middle of 2010 and end of 2011 although some of these falls have already occurred, with a drop 3% expected in 2011. This compares to total falls of just 3.5% expected in prime central London over the same eighteen month period with a drop of just 1.0% in 2011.
‘Unlike the doomsters, we are not forecasting a deep double dip and there will be tiers of the market, like grade A prime London properties, that may well escape the downturn virtually unscathed,’ said Yolande Barnes, head of residential research at Savills.
‘It is the detailed forecast that counts. These distinctions will make a big difference to longer term performance and we expect markets rich in equity to operate very differently to those historically heavily reliant on mortgage finance,’ she explained.
As a result, the Savills forecasts for the prime locations and high quality residential property are that values will significantly outperform the UK mainstream housing market over the next five years, both in the pace and scale of growth.
‘London is a market driven by a totally different set of factors to the rest of UK housing, not least its position as a global financial center and appeal as a safe deposit for international investors,’ said Lucian Cook, director of Savills research.
‘It will continue to lead the recovery, financed by overseas wealth inflows and a strong private sector economy, particularly in the financial and business services sectors. In turn, this will have a knock on effect to other parts of the South East which will also be driven by the stronger Southern economies,’ he added.
In the shorter term, the mainstream UK market has, on average, outperformed expectations over 2010, by growing in the first six months of the year. However, falling prices have been widely reported in the third and fourth quarters and Savills anticipates that it will end the year down by 0.5%. But Savills believes that the falls next year will be contained to an average of a few percentage points across the UK.
Overall Savills predicts that prices in prime central London will have risen 2% in 2010, fall 1% in 2011, rise by 10% in 2012, rise 8% in 2013, go up 6.5% in 2014 and by 6.5% in 2015, give a five year rise of 33.4%.
Prime regional property will see a five year rise of 23.8%, including a rise of 1% in 2010, falling 1.5% in 2011, then rising 6% in 2012, 5.5% in 2013, 6% in 2014 and 2015.
In the mainstream market it will be 2014 before some regions see prices increasing properly again. In the West Midlands, for example, the forecast is for prices to have fallen 2% in 2010, 4% in 2011 and 0.5% in 2012. A 1% rise is predicted for 2013, a rise of 4% in 2014 and 4.5% in 2015, giving a five year rise of 4.8%.
‘It is now clear that the divisions we have seen emerging in the market, particularly over the past two years, have become permanent. Going forward, the market will be characterized by subdivisions defined by location, property type and the nature of occupier demand, and it is these divisions that will dictate the scale, timing and sustainability of future price growth,’ said Barnes.
This article has been republished from Property Wire. You can also view this article at Property Wire, an international real estate news site.