When the dust settles
5th May 2020
It seems the lockdown might ease soon; it has already been relaxed in some European countries. According to some sources we will all need to take the Bill Gates’ Vaccine, otherwise some of our rights will be stripped away.
When this is over, the property market will start to recover the effect of months of stagnation.
Interestingly, we managed to do two lets during this period. One, a studio flat in the prestigious Park Crescent development, which has undergone a major refurbishment and now the entrance looks more like a 5 star hotel. The new let was agreed a couple of weeks ago, where the tenant was moving from a similar apartment in the block to this one.
Another property was let only prior to the weekend. A flat in Hampstead, superbly done up, to an overseas tenant, who had a member of her family scouting the area for a suitable property. As soon as they saw the flat they were in awe. This property has been done to a very high standard, it was even requested for a photo shoot for a well known model. It was probably without a doubt the best apartment they had seen. This deal was interesting, as the tenant is overseas and there is no guarantee of whether she will be able to make it back in time to start the tenancy.
In the first example, there was very little negotiation on the rent, on the second there was none. These two examples show the strength of the London property market, even when the breaks have been on from the top.
There is no doubt the market will recover. It’s an old mature market, which is the favoured choice for overseas investors. I purposely didn’t use the word bounce, because that is not what will happen.
The lockdown has impacted companies, and therefore the workforce, this will in turn filter through to a dampened demand for rental properties. The effect on commercial properties will be far greater than residential.
We have advised our landlords, whose properties are currently looking for tenants, to reduce the asking rent by about 25%, in order to attract tenants quickly. Despite the above two examples we believe there will be a lull in the market, before it starts to move again. It is unwise to get fixated on an unrealistic rental figure as you could lose the incremental amount you’re gunning for against it being empty. Therefore, it’s better to anticipate this and reduce the asking price to begin with.
This move should be done with the understanding this tenancy should be no longer than 6 months, which is the minimum for an AST. I believe that after this period the market should be back to normal levels.
On the plus side lending has responded well to the situation and many lenders have put in policies which have adapted to the new environment. The rates are low as well, therefore one can expect the rise which was going on prior to the lockdown to carry on once the market has found its feet again.
Commercial properties will undoubtedly take longer to recover than residential properties. This provides an opportunity. Under permitted development one can rezone up to 150sqm of commercial property into residential, you do not even have to go for planning; you can get the confirmation in 56 days.
This will be a great opportunity to land some deals as we step out of lockdown. We have recently secured a property for a client with the same intention in mind; we will be doing a case study on this in future articles.