Demand for apartments set to rise in 2023, says Zoopla

According to Zoopla, the UK’s property market kick-started the year with a higher demand for apartments. This trend is expected to continue to increase over the coming months.

Zoopla’s data also suggests that the average price for flats has increased over the past 12 months, indicating that the demand for apartments is likely to remain high throughout the rest of the year.

Key findings from the report

According to a recent report by Zoopla, demand for homes has rebounded in the first couple weeks of 2023 but remains markedly below January 2020-2022 levels. Despite this, current interest from buyers is at a similar level as in pre-pandemic years and 10% ahead of 2019.

Demand and sales agreed are holding strong in the North East, Scotland and Wales. Still, market conditions are weaker in the South East, South West and East Midlands – all areas which saw significant gains during the pandemic following the government’s Stamp Duty Holiday incentive.

Mortgage rates for new businesses are now generally below 5% and look set to remain in the 4 to 5% range in 2023. This is good news for buyers and should boost market activity, especially considering that rates sat between 6% and 6.5% at the end of 2022.

However, the outlook for demand in 2023 will depend on several factors, including the economic outlook, the labour market’s strength, consumer price inflation, and interest rates.

Demand for apartments grows

With mortgage rates increasing, buyers are becoming more value-conscious when choosing where to invest their money.

According to the latest Zoopla report, demand for 1- and 2-bed flats is rising, with 27% of new buyers searching for these types of homes, up from 22% a year ago. Conversely, demand for 3-bed houses has dropped 5% to 39%. This trend is seen across all areas of the UK, with 1- and 2-bed flats accounting for 49% of demand in London, up from 42% a year ago. These figures indicate that there is still a strong demand for apartments despite the rising costs of purchasing them.

For Buy-to-Let investors, apartments remain a popular choice for the same reasons, and with the cost of living crisis putting strain on household budgets, more renters are likely to take a similar approach when renting, seeking better quality and smaller rental properties within the Build to Rent sector which offers better value for money.

Demand for apartments in commuter locations

And it’s more than just smaller properties buyers and renters are seeking to reduce their overall cost of living. According to Zoopla, the demand for apartments is now seeping into areas outside of city centres and into more affordable commutable locations.

Towns and cities adjacent to larger urban areas are also seeing a rise in demand, with Slough, Watford, Chelmsford, Guildford and Dartford being among the towns that have seen the biggest increases.

Regional cities such as Huddersfield, Stockport and Wakefield are also experiencing a rise in demand for apartments, although to a lesser degree. This is because these towns offer easy access to bigger cities, allowing people to commute to work or study with ease. This has made them attractive options for those looking for somewhere affordable to rent or buy.

In addition, these towns often offer plenty of amenities and attractions, making them attractive to those looking for a more relaxed lifestyle away from the hustle and bustle of city life. With more people looking for these types of locations to live, it’s no wonder that demand for apartments in commuter towns is rising.

Property investors seeking to diversify their portfolio this year can capitalise on this trend by investing in good-quality apartments boasting excellent transport links into nearby economic hubs.

Areas seeing the biggest price increases

According to the report, house price growth stalled in the fourth quarter of 2022 due to a 50% drop in buyer demand. This caused UK house price inflation to slow to 6.5% at the end of the year. As a result, most areas recorded small price falls in the fourth quarter of 2022 as buyers negotiated harder on price. However, the gap between asking and sold prices have remained at 3% to 4%.

Additionally, sellers will likely make modest price reductions over the first quarter of 2023 as they adjust asking prices to remain competitive across local markets.

Despite the slowdown in growth, many areas saw price increases during the fourth quarter, showcasing the property market’s resilience.

In particular, year-on-year, Nottingham recorded average house price growth of +9.1%, Manchester +8.1%, Birmingham +8.1%, Leicester +8.1%, and Liverpool +7.6%. These top five markets performed well above the national average of +6.5%.

For those looking for trends from this data, remote working has allowed people to move further away from the city centre to more affordable locations. This will likely lead to continued price increases over the next few years as demand remains strong.

Outlook

Overall, the UK’s property market continues to prove its resilience during times of economic uncertainty, and according to the Office for National Statistics, the total value of homes in the UK is over £10.5 trillion. That is almost £8 trillion in housing equity.

Positivity towards the housing market increased at the start of 2023, and with better-value mortgage products now available on the market, Zoopla expects modest price adjustments throughout the year.

While some areas are likely to see modest increases in property prices, there are likely to be low single-digit price falls in the first half of 2023.

This could make it an attractive time to purchase a Buy-to-Let property, particularly in locations that experience a drip in values yet continue to see high demand from renters. These areas will produce robust rental returns for investors in the short term and could see a bounce-back in value in the coming years.

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