Tim Hyatt Reflects on Today’s Post-Covid Market Norms

Posted by Knight Frank Newcastle on 4th April 2022 -

This month marks two years since the first UK national lockdown, following the outbreak of Covid-19. A time for high uncertainty as markets went into suspension and we began planning for what we thought might lie ahead. Here at Knight Frank, there was an expectation that many deals could fall through - in reality, the vast majority of them held together. Tim Hyatt reflects.

UK residential real estate has seen extraordinary growth across all sectors throughout the pandemic. House prices have risen by almost 20% since March 2020 (record performance) and many English towns, cities and rural markets have gone through a renaissance.

PBSA

Purpose-Built Student Accommodation (PBSA) has performed extremely well despite fears surrounding the rise of online learning. The sector has surpassed expectations in this current cycle with average sector-wide occupancy now c.95%. Investors spent £2.46 billion in the sector in the second half of 2021, taking total spend for the year to £4.42 billion.

Whilst total spend is down from 2020, analysis of deal numbers points to a market with increasing activity. 35% more deals were struck in 2021 compared with 2020. Knight Frank predicts that the UK’s PBSA sector will reach a combined value of over £72 billion by the end of 2022.

Residential Investment

Institutional investment volumes in this sector continue to rise, and 2021’s year-end investment volumes into build-to-rent reached a record £4.3 billion. The pool of investors accessing the market is deepening and around 23% of deals agreed in 2021 were from new entrants, a move which has intensified competition to create or acquire stock.

The growth of BTR will continue as a central feature of the real estate market in 2022 - underpinned by a growing, under-supplied rental market, as buy-to-let landlords continue to rationalise portfolios and BTR’s proven income streams with defensive counter-cyclical qualities.

Senior Housing

Last year was a record-breaking year for UK Senior Housing. Institutional investors spent £1.4 billion in 2021, and annual spend was up 2.2% from the £1.3 billion spent in 2020. The number of deals agreed was up 15% year-on-year.

Mainstream housing and price growth

Demand remains incredibly strong across London and country markets, and supply of housing is starting to increase following the short-term lull at the end of last year’s stamp-duty holiday. Our data shows that the number of new prospective buyers was 50% higher than the five-year average in February this year, and the number of new prospective rental tenants was over 100% higher. 

We expect price growth to stabilise and the recent record levels of demand to slow, due to higher inflation and rising interest rates. That said, we still forecast house prices to rise by 7% in PCL and 4% nationwide this year. In the rental market, rents are 5% above their pre-Covid level which shows how strong the bounce-back has been. We predict rents to finish the year 8% higher in PCL and 3% higher across the UK.

The Country and London markets are rebalancing. The ‘escape to the country’ urge has eased, and there is increasing demand back in London, driven by the back-to-the-office momentum.

Despite the current economic and political backdrop, the market is active – and as we enter spring, there's no sign that annual house price growth is about to return to single digits in the UK. As we move beyond the pandemic, spring could mark the return of more recognisable and predictable conditions in the UK housing market.

Tim Hyatt, Head of Residential, Knight Frank.