Despite a difficult year for the commercial property market, UK residential investment volumes matched 2018’s all-time high, reaching £6.1billion in 2020 - £2.8bn of which targeted the London market.
While some commercial property sectors faced a hiatus in activity due to the uncertainty caused by the global pandemic, investment into residential property continued to increase, reaching 12 per cent of all commercial real estate investment in 2020, achieving yields of 4.4% in Q4 2020.
Some £3.5bn of the investment was placed in the growing Build-to-Rent (BTR) sector. By the end of the year the total BTR pipeline stood at 126,085 units, a 17 per cent increase on a year earlier.
Andrew White, Head of Residential at Colliers, said: “UK residential property is a solid investment option in the UK, particularly in the burgeoning Build-to-Rent sector as there is a perfect storm of a shortage of housing, and a huge affordability gap, especially for those who want to work and live in London. Over the last year the sector has grown 20 per cent and is going to continue to grow to meet the country’s housing needs.
“In addition to Build-to-Rent our cities, and in particular London, will always be attractive to overseas investors. Despite Brexit the UK is still a gateway location to Europe and America, providing access to a secure financial market and another currency to capitalise on.”
As well as investment properties, consumer residential sales performed well last year. Although the first UK lockdown prevented property viewings from taking place, the Chancellor’s announcement of a stamp duty holiday last spring helped to capitalise on the pent-up demand which appeared once restrictions were lifted. In Q4 2020 transaction figures reached 351,000, the second highest quarterly figure since the global financial crisis (behind Q1 2016 when it reached 387,000 ahead of second home stamp duty changes introduced in April that year). Also during Q4 2020 there were 307,000 mortgage approvals, with an average mortgage size of £211,119.
Oliver Kolodseike, deputy chief economist at Colliers said: “It’s no surprise that the stamp duty holiday has resulted in a rush in home buying as the upfront costs become more obtainable. With affordability ratios continuing to deteriorate as house price growth outperforms earnings growth, house buying is as difficult as ever, particularly in the south east, and any support brought in by the government is welcomed. The extension of the stamp duty holiday, albeit with staggered increases, until October is likely to mean that this level of activity will be sustained through most of 2021.
“It is also helping the buy-to-let landlords to grow their portfolios again. The last time residential activity reached those kind of levels was before the additional three-per cent levy for second homes was introduced in April 2016.”