UK Property Insight Q2

House Price Dynamics

Correction in Motion: Following Q1's modest growth, UK house prices registered a notable 0.8% decline in June, the sharpest monthly drop since early 2023. The adjustment reflects post-Q1 stamp duty policy changes that cooled buyer momentum.

Regional Divergence:

• Northern Ireland & Scotland: Outperformed with 9.5% and 6.8% annual growth, respectively, driven by resilient local economies and lower price bases.

• England: Showed sluggish growth, with the South West at 0.9% and London broadly flat amid affordability constraints.

• North of England: Remained more active, with buyers capitalising on relative affordability.

Buyer Sentiment & Mortgage Lending

Market Cooling: Despite high transaction volumes in April, buyer activity softened toward quarter-end due to affordability concerns and tax policy changes.

• Mortgage Rates: Remained steady around 4.4–4.6%, but affordability pressures persist as wage growth lags behind.

• Sellers Discounting: Average discounts of 2–3% on asking prices became the norm, especially in overheated markets.

• First-Time Buyers: Pulled back modestly in London and South East, although demand held up in regional towns and cities with Help-to-Buy-style incentives.

Rental Market Pressures

Demand Surge Continues: PRS rents grew 1.9% QoQ, with urban centres like Bristol, Manchester, and Glasgow seeing annual increases above 10%.

• Supply Constraints: The pipeline of rental homes remains tight, exacerbated by small landlords exiting the market due to tax and regulatory pressures.

• Institutional Investment: Build-to-Rent gained further traction, with significant planning activity and new schemes launching across the Midlands and northern cities.

• Affordability Concerns: Renters now face average rent-to-income ratios exceeding 35% in London and other core cities.

Commercial Property Market

Offices: Navigating Recovery

Divergence Widens: The two-speed office market solidified further in Q2.

• Prime CBD Offices: ESG-compliant, flexible space in London and tier-1 cities saw rents increase by 1.3–1.6%, with strong pre-leasing activity in new builds.

• Secondary Offices: Continued to suffer valuation losses of 10–15% YoY, particularly where refurbishment or repositioning is economically unviable.

• Occupier Trends: Flexibility and wellness remained top priorities. Landlords of sub-prime assets faced “brown discounting” and rising voids.

Retail: Resilience in Select Segments

Recovery Stabilising:

• Retail Parks: Continued outperformers, benefiting from essential retail anchors, F&B expansion, and convenient access.

• Urban High Streets: Mixed fortunes—affluent commuter towns are reviving, while weaker locations struggle with churn and rent rebasement.

• Leasing Activity: Focused on experiential and omni-channel brands. Leisure and healthcare services filled voids in underutilised locations.

Industrial & Logistics: Sustained Strength

Still the Top Performer:

• Rental Growth: Averaged 2.5% QoQ in key nodes like Milton Keynes, East Midlands, and outer London.

• Demand Drivers: E-commerce, EV supply chains, and 3PLs remained dominant occupiers.

• Development Trends: Build-to-suit dominated as speculative activity declined under construction cost and finance pressures.

Investor Sentiment

Volume Softens, Outlook Improves:

• Total Investment Volume: Estimated at £8.1 billion, a 28% YoY decline but with signs of bottoming.

• Core Buyers:

  • Middle East & Asia-Pacific capital: Maintained interest in prime logistics and multifamily residential.

  • UK Institutions: Continued to reweight toward BTR and life sciences.

• ESG Premium: Assets with EPC A/B ratings traded at 5–10% premiums versus sub-standard peers.

Financing Conditions

Selective Optimism:

• Debt Markets: Margins held around 275–325 bps, with loan-to-value ratios stable at 60–65%.

• Development Finance: Tight but improving for logistics, BTR, and prime office refurbishments.

• Distress Signals: Opportunistic buyers increasingly active in secondary office auctions, though systemic risk remains contained.

Regulatory & Structural Drivers

Planning & Policy Shifts

Policy Influences Accelerate:

• Stamp Duty Reset (April): Lower thresholds weighed on demand, particularly in the £500k–£1m range.

• Renters Reform Bill: Still pending. Institutional players preparing for longer-term tenancy requirements and increased compliance.

• MEES Enforcement: Deadline-driven repositioning of older office stock began in earnest. Retrofitting is now a priority.