Blog Post No. 206
Million-Pound Homes, Office Conversions & First-Time Buyer Guide – 24th Oct Property Bulletin
One in five London homes now sells for £1 million or more, according to research analysing Land Registry figures by estate agent Benham and Reeves.
In the first eight months of this year, 21% of residential properties in the capital changed hands for seven-figure sums, a significant increase from the 15% recorded in the same period in 2019. This data underscores how the higher-end London property market has outperformed the rest in the aftermath of the pandemic-induced economic downturn.
While the volume of million-pound transactions has decreased in 2023, as expected in the current housing market, there were still 3,716 seven-figure sales by the end of August this year, marking only a 22% decline compared to the same period in 2019. In contrast, all property sales in the capital dropped by a much larger 45%.
The average price of homes selling for over £1 million has also seen a slight increase, rising from £1.4 million to £1.45 million during this period, indicating the relative strength of the million-pound market. London dominated the seven-figure housing market, with one-fifth of its sales surpassing this threshold, compared to fewer than 2% of second-placed Bristol’s transactions.
Benham and Reeves director Marc von Grundherr noted that the London market has been underperforming compared to the rest of the nation in terms of overall house price growth. However, it remains the primary driver for homes sold for £1 million or more.
The return of foreign homebuyers has contributed to strong demand in the upper tiers of the London market, according to Grundherr.
Lucian Cook, head of residential research at Savills, explained that rising interest rates have led to a two-tier housing sector in London, affecting the ability of different groups to transact and causing variations between the mainstream and prime markets, where housing wealth is concentrated.
Nick Whitten, head of living research at JLL, attributed the relatively robust performance of £1 million+ homes in London to an expanding pool of properties falling into this price bracket, driven by a 36% increase in the number of London homes valued at £1 million or more since pre-Covid times. He expects continued strong house price growth in London due to a shortage of homes to meet demand, with the trend exacerbated by a decrease in new home supply in the capital over the past year.
We explore the potential transformation of vacant office space in London into residential homes.
According to estimates from CBRE, there’s currently about 20 million square feet of empty space in London’s office buildings. This space could be repurposed to create around 28,000 homes in the UK capital. The urgent need for housing in London has been emphasized by a report titled “Office to Residential Conversion in London: The Opportunity & Challenge” by the global real estate adviser.
The report highlights that London’s new homes pipeline could be depleted in as little as six years, emphasizing the case for converting offices into residential properties. The study analyzed historical residential sales rates and found that the current stock of unsold homes in London could be absorbed within just two years. This suggests a potential shortage in housing supply across the city within six years.
Converting the existing office stock could provide a solution to this impending shortfall in housing. Central London currently has an office vacancy rate of around 8.5%, accounting for approximately 20 million square feet of empty office space. Of this, about 16 million square feet is considered secondhand stock. If this secondhand stock is converted, it could potentially yield an estimated 28,000 homes for the market.
Scott Cabot, head of residential research at CBRE, notes that the current market conditions are making conversion an attractive prospect for office owners. Stranded offices that no longer meet occupier needs or regulatory requirements are prompting the repurposing of these assets, with evidence of this shift already visible.
CBRE’s data indicates that between the start of 2022 and the end of May 2023, approximately £1.3 billion worth of Central London office space was acquired with the intent to convert it for other uses, including residential. Smaller office buildings, particularly those built since 1984 and under 1,500 square meters, are more conducive to conversion and fall within current permitted development rights (PDR) legislation.
Since 2015-16, over 21,000 homes have been delivered through PDR and the conversion of smaller offices for residential use, with an additional 9,000 homes in the current PDR pipeline, primarily in outer London boroughs.
The report also highlights the likely impact of proposed minimum energy-efficiency standard (MEES) legislation, which would require commercial real estate buildings to have an energy performance certificate (EPC) rating of at least B by 2030 to be leased. The cost of upgrading many secondary and tertiary offices to meet these standards may make conversion a more attractive option for investors.
However, converting office buildings to residential use does come with its challenges. These include planning, structural, and viability issues, as well as the need for office floors to meet residential space standards. Additionally, London’s multi-tenanted office spaces often need to be predominantly vacant before conversion is feasible, and areas within the Central Activities Zone in London are highly protected from conversion.
In conclusion, the conversion of vacant London offices into homes presents a promising solution to address the housing shortage in the UK capital. Government intervention and a review of land-use policy principles may be necessary to facilitate these conversions and unlock more opportunities to address London’s housing needs.
Symmetrical speeds play a crucial role in the Build to Rent (BTR) sector, transforming the way people approach real estate investments and the way residents live and work. Symmetrical speeds in internet connectivity refer to equal upload and download speeds, and they are gaining significance in BTR for several reasons:
1. Supporting Remote Work and Learning: In an era of remote work and online learning, symmetrical speeds are vital. Many professionals require fast upload speeds to send large files, videos, and data, making working from home feasible and productive.
2. Enhancing Smart Home Experiences: As smart home technology becomes more common, symmetrical speeds ensure that connected devices like lighting, heating, security, and entertainment systems operate seamlessly, enhancing residents’ living experiences.
3. Supporting Multiple Devices: In households with numerous connected devices, symmetrical speeds accommodate varying connection requirements without a drop in performance. This is especially important when multiple family members are using the internet simultaneously.
4. Building a Reputation for Quality: BTR communities that prioritize high-speed symmetrical internet gain a reputation for quality and modernity. Positive reviews and word-of-mouth recommendations from satisfied residents can drive increased demand for rental units.
5. Tailored Community: In a competitive BTR market, symmetrical speeds should be a consideration when selecting a connectivity partner. Providing fast and reliable internet tailored to residents’ needs not only supports their living experiences but also sets a BTR community apart by delivering a seamless living and working environment where residents can thrive.
In summary, symmetrical speeds are essential in BTR for supporting remote work and learning, enhancing smart home experiences, accommodating multiple devices, building a reputation for quality, and creating a tailored community that meets residents’ evolving needs in the modern world.
John Lewis, the British retail giant, finds itself under fire for its affordable housing plans. The retailer has come under heavy criticism after admitting that only a small fraction of the flats at one of its flagship developments may be designated as affordable housing.
According to planning documents, John Lewis set out to make 20 percent of properties at its new development in the London suburb of Bromley affordable, but in a somewhat controversial move, they also stated that they would “always provide a minimum of 10 percent affordable housing regardless.” The company has insisted that this commitment is a “significant benefit of the scheme” and would make a “vital contribution to the borough.”
However, this move has raised eyebrows among London planning officials who believe that the level of affordable housing being proposed is significantly below what’s expected for a development of this scale.
Local politicians have also chimed in on the matter. The Bromley Liberal Democrats voiced their concerns, stating that the development falls short of addressing Bromley’s housing crisis. They argue that what’s truly needed are more affordable homes, not what they refer to as “executive housing.” Their fear is that this development may attract high earners to Bromley, effectively pricing out local families and contributing to the housing challenges the area faces.
It’s important to note that this project is part of John Lewis’s broader effort to diversify away from retail. They’re planning to build 353 one, two, and three-bedroom flats above their Waitrose store in Bromley. It’s just one of three rental home schemes they have in the works.
The retailer did engage in a lengthy consultation process with locals, assuring them that 20 percent of the development would be designated as affordable housing. However, the latest revelations have stirred local frustration over the scheme, with councillors and residents expressing their concerns.
John Lewis has announced that it’s still in negotiations with the council and London authorities to increase the proportion of affordable housing at the development to 35 percent. A spokesperson for the John Lewis Partnership stated, “We’re proposing to bring much-needed homes to Bromley on a brownfield site, which will help tackle the housing shortage and continue to look at how we maximize the amount of affordable homes, which will target key workers.”
The warning that only a minimal number of affordable homes may be included in the development is undoubtedly stirring the pot and fueling the debate over this housing project. It remains to be seen how this controversy will unfold and whether the project’s final outcome will address the concerns raised by local officials and residents.
In the UK, Chancellor Jeremy Hunt is exploring new measures to support first-time homebuyers, addressing the ongoing challenge posed by high interest rates in the property market.
One of the options under consideration is an extension of the existing mortgage guarantee scheme, designed to enable first-time buyers to purchase their first property with only a 5% deposit. This scheme, initially introduced during the pandemic by former Chancellor Rishi Sunak, applies to properties valued at up to £600,000. It incentivizes lenders to offer low-deposit mortgages by having the state underwrite some of the associated risks.
Initially, the mortgage guarantee scheme was set to conclude in December, but it may be extended for an additional year in the forthcoming Autumn Statement. This extension is expected to be part of a broader package of measures reported by The Sunday Times newspaper.
The Bank of England maintained interest rates at 5.25% in September, following a series of increases that have pushed mortgage rates to 6% for a five-year fixed-rate product and 6.5% for a two-year fixed-rate option. This has resulted in lenders reducing the availability of products for buyers with small deposits, thereby limiting choices for first-time buyers and giving an advantage to cash buyers who do not require borrowing.
Hunt is also considering ways to assist potential buyers in saving for a deposit. This includes improving existing ISA products and potentially introducing new tax-free savings options. Some existing ISAs, such as the Help to Buy and Lifetime ISAs, allow savers to accumulate funds that can be used for a house purchase, provided the property’s value does not exceed a specific threshold.
The Help to Buy scheme, which concluded in March, offered prospective buyers a 25% government bonus if the house’s cost did not surpass £450,000 in London and £250,000 in the rest of England. The Lifetime ISA, which remains in effect, allows individuals to use their savings to buy a home without incurring tax charges, but the property price cap is set at £450,000 nationwide.
Hunt is exploring the possibility of raising the property price cap on the existing range of ISA products and potentially introducing a new ISA product tailored for first-time buyers following the closure of the Help to Buy scheme.
However, the introduction of these measures will be contingent on the state of public finances and the economic outlook over the next few months.
In other news, a spokesperson for Hunt has denied reports suggesting that the Chancellor is considering stepping down before the next general election to avoid a “Portillo moment,” a reference to the famous incident when Michael Portillo, then Defence Secretary, lost his seat in a landslide victory for Labour in 1997. Hunt, who holds an 8,800 majority in South West Surrey, would be contesting a new constituency in the next election due to electoral boundary changes.
A spokesperson for the Chancellor confirmed that Jeremy Hunt intends to stand as the Conservative party candidate for Godalming and Ash in the upcoming general election.