The prime residential markets across England and Wales appear at last to be stabilising as values turn positive in the high value markets around the capital. The value gap between London and the regional markets is at or close to a record and there are early signs of recovery outside the capital, making 2013 a good year for those considering a move out of the capital to make it a reality.
The prime London residential market has recorded stronger price growth in the past three months than at any time since March 2012, defying expectations that values would flatline this year. We are also beginning to see signs of sustainable price growth in the prime suburbs and commuter ring around London. The value gap between London and prime commuter locations seems to be peaking and there is now a real sense that the prime regions are bottoming out.
The Savills prime market indices show that prime London values rose by an average 2.5 per cent in the second quarter of 2013, while the prime regional market average struggled to show price growth. This said, the commuter zone is now in positive territory and there are signs that even in the prime markets of the Midlands and the North of England prices have bottomed out.
The strongest price growth in prime London was seen in the predominantly domestic markets of the prime southwest (running from Fulham to Richmond and Battersea to Wimbledon), where values rose 3.2 per cent in the last quarter. Despite reduced city bonuses, these markets are benefiting from wealth accumulated prior to the downturn, new wealth creation, especially from West End hedge funds, and increased buying activity from international buyers working and resident full time in the capital.
Now, with values still well below peak in most regions, there are very real opportunities across the market. Traditionally this would trigger a ripple of equity out of London, down the A3 and M4 ‘wealth corridors’ and beyond, ultimately kickstarting the regional market recovery in earnest.
However, the recovery remains Londoncentric and this traditional ripple of recovery has been slow to start in this cycle, with Londoners reluctant to move away from the capital. We are now finally seeing early signs of a long-awaited equity flow out of the capital.
At the same time, the rate of price falls is slowing right across England and Wales. In the first three months of 2013 the commuter belt recorded its first quarterly growth since the downturn and generally the prime suburban markets have proved the strongest to date. Values rose a further 0.8 per cent in London’s suburbs and 0.5 per cent in the inner commuter zone in the second quarter.
Elmbridge has been a particularly strong performer and a flow of wealth down the A3 corridor means that prices are 6.6 per cent above their 2007 peak. In this market the private estates of Wentworth and St Georges Hill have performed particularly strongly with prices 20 per cent on average above their pre crunch level. This is backed up by robust transactions in the first part of the year, reflecting the levels of international demand that show parallels with Central London.
Within the commuter zone, urban markets have performed most strongly, with locations such as Cambridge, Oxford, Winchester and Bishop’s Stortford having exceeded their 2007 peak. These well-established cities, that critically are within an hour of London by rail and offer a variety of highly rated schooling, are showing positive growth (1.9 per cent) to date this year.
Beyond the South East and these strong town markets, the recovery has been slower to take hold. However, in the second quarter of this year only the Midlands and North of England, and Scotland recorded further price falls – but these were marginal – and all regions are expected to return to growth in 2014.
In January, I went on record saying, ‘It’s tempting to call the bottom of the country house market’. It now seems clear that the value gap between London and prime commuter locations is be peaking and there is now a real sense that the prime regions are bottoming out.
History tells us that only the lucky few or very shrewd succeed in buying at the bottom of any market. The majority prefer to wait to spot a trend and buy into a rising market. But we are cautioning our clients that the recovery will continue to be uneven, even within regions, and over-pricing will quickly halt progress.
Justin Marking is Head of Residential Sales at Savills.