The city living property market has become a very important part of the property market over the last few years. But in the current situation what might be the future prospects for it?
Property developers, estate and letting agents, investors and landlords have all benefitted from the increasing popularity of living in cities over the last couple of decades. So will city living property continue to be a good opportunity after Covid-19, or will things have changed for good?
While city living has always been popular in London many regional cities have seen their city centre property markets grow from almost nothing in just 20 years. Birmingham, Manchester, Liverpool, Leeds, Bristol, Newcastle and Nottingham all now have major city centre markets. Even many smaller cities and towns have city living developments, normally pitched at professionals who work in the centre.
In most cities, developers and investors are still building city living properties and have many more schemes passed for planning. So supply of city living property is increasing. Not only that, the market is widening with more build to rent developments and more recently co-living schemes being developed.
Demand for city living property seems to have kept pace with supply over the same period too. City living property has offered investors and landlords strong rents and, frequently, much better rental yields than suburban or rural property.
Then Covid-19 came along and changed everything, including in the property market.
People are not working in cities in anything like the usual numbers. It’s unclear when, or whether, those numbers will ever recover. Many reports tell us that the working from home trend is prompting many people to move out of cities into more rural areas, so reducing demand for property to buy and property to let in cities.
It is also worth remembering that in many cities students are a key part of the city living property market. Many cities now have large numbers of PBSA apartments which are in competition with private landlords for tenants. Currently many university courses are being held online so students do not actually need to live in the city. Worse still, there’s little or no student life to attract them to the bright lights of the city either.
So what will happen now in the city living property market?
Let’s run through a few scenarios.
It’s not entirely impossible that the city living property market alongside the wider property market might not be that affected that much at all. Workers could start working back in the cities in numbers come next spring and demand to live and rent in cities could continue.
On the other hand it’s possible the demand for city property will fall, especially if working from home becomes a permanent trend. This could come at a time when new developments which are already in the pipeline are completed. That could make things tricky for city centre landlords, as well as estate and letting agents. Rents could fall, city property could be left empty, and this could feed through to lower property values. Some landlords could fall into negative equity or even be faced with repossession.
Of course, there are two sides to every coin. If prices of city living property fall, especially if there is something of a ‘fire sale’ situation, that could actually be a good opportunity for investors. Investors who can afford to take a long term view might be able to buy up property, especially in locations which have become very unaffordable such as London. As the market recovers they could see excellent yields, rising rents and a big rise in the capital value of their investment.
Although Covid-19 isn’t anything like the 2008 financial crisis there could be a comparable here. In 2008, there were reports that many city centres had hundreds of empty apartments and many new developments were cancelled. However, city property markets only took around two years to recover in London and 4-5 years elsewhere.
Let’s summarise by taking in a few different opinions from a variety of commentators in the property market:
This report from the Financial Times says, even though the summer has seen a housing boom and prices have risen sharply, it has become harder to sell flats in London and their prices have fallen.
A This Is Money report quoting Aldermore’s 2020 Buy To Let Tracker says that cities still offer investors and landlords good rental returns and strong yields – up to around 8-9% in the best city locations.
This report by The Guardian from earlier this year says that although Coronavirus has damaged Britain's cities history shows that they will recover.
This report from Mortgage Introducer suggests the market will see a correction in 2021 but should be back to normal by the end of the year.
This report from Melbourne, Australia, says that Covid-19 has created a unique buying opportunity. Could this also be the case in some UK cities?
Lastly, this post from our own blog gives some Predictions For The Property Market in 2021.