QIB-UK, based in the heart of London’s Mayfair district, gives an expert view of the real estate market in the UK and London in particular, which remains one of the top international destination for Qatari nationals.

The prime London sales market is in a sweet spot. Demand in the capital has recovered from the depths of the pandemic as the ‘escape to the country’ trend calms down and the UK economy picks up. The number of new prospective buyers registering in London last month was the third highest figure in a decade, Knight Frank data shows. Meanwhile, supply is finally picking up as the economic warnings mount, mortgage rates climb and owners sense prices may be peaking. Underlining this, the number of new sales instructions in May was the sixth highest figure in ten years, according to Knight Frank data.

With demand and supply both high, the inevitable result is more transactions. Indeed, the number of offers accepted in May was the highest monthly figure in a decade. The pattern is broadly similar in Prime Central (PCL) and Outer London (POL), with both areas recording a ten-year high for offers accepted. Although there will be a lag before sales numbers also rise, May was the tenth highest month in a decade for exchanges when the impact of stamp duty holidays is removed.

“The stars are aligning for buyers and sellers in the London property market, with supply increasingly able to keep pace with robust demand,” said Tom Bill, head of UK residential research at Knight Frank. “For those wondering when this period of strong activity will end, it’s likely to last longer inside zone 1 due to the recession-proof qualities of Prime Central London (PCL) and the fact a longer-term recovery is underway.”

Prices in Prime Central (PCL) and Outer London (POL) are increasingly on different trajectories. Indeed, we forecast that prices in Prime Central London (PCL) will outperform most other UK markets over the next five years. Prime Central London (PCL) is in recovery mode after seven subdued years caused by tax rises and political uncertainty. International buyers, who haven’t yet returned in meaningful numbers, will only accelerate this trend, especially in light of the recent decline of GBP. Meanwhile, quarterly growth in Prime Outer London (POL) declined for the third consecutive month in May as the race for space becomes marginally less frenetic and rising mortgage rates and the higher cost-of-living take their toll.

Prices in Prime Central London (PCL) rose 2.4% in the year to May, which was the highest rate of annual growth since April 2015. In Prime Outer London (POL) prices increased 4.8% over the 12-month period, which was also the highest rate of annual growth in more than seven years. Underlining the scope for recovery, prices in Prime Central London (PCL) are still 15.3% below their last peak in August 2015, while prices in Prime Outer London (POL) remain 7.8% below their last high in July 2016.

Meanwhile, in the lettings market, a frustrating period for tenants looks likely to continue this summer. While supply and demand are rebalancing in the sales market, the amount of property available to rent remains low compared to demand in London and the Home Counties. However, there are early signs that supply may be slowly picking up. In May, the number of market valuation appraisals (a leading indicator of demand) was the tenth highest figure in a decade. One reason for the increase is that more owners are letting out their property after failing to achieve their desired price in the sales market. Price growth in Prime Outer London (POL) appears to be slowing as the race for space calms down and it is only steadily increasing in Prime Central London (PCL), with overseas buyer numbers not yet back to pre-Covid levels.

Another cause is the higher churn of tenants as a growing number of workers are changing jobs or leaving the UK altogether. One in five workers are likely to leave their jobs in the next 12 months as they seek improved pay and a greater sense of fulfilment, according to a recent global survey by accountant PWC.

Meanwhile, more landlords are being tempted back into the market by rising rents, a trend that would also underpin demand, as we explore in more detail here. Average rental values in Prime Central London (PCL) rose 29.1% in the year to May. The rise was smaller than in April, suggesting that recent steep increases have peaked. Rental values fell sharply in early 2021 as staycation restrictions led to a flood of short-let properties on the long-let market, which drove down rents.