While tightening financial market conditions will likely usher in a period of falling house prices, the correction in commercial property values has been much more severe.

Alongside our latest interactive map on per sq ft residential values, here we provide additional context on the latest trends, with regard to regional variations, growth and the relative position of residential values vis-à-vis the core commercial property sectors.

Economic headwinds drive price slowdown

According to Land Registry figures, average UK house prices increased by 9.8% in 2022. Strong as this is, changing financial conditions and rising interest rates saw the rate of growth slow appreciably towards the end of the year. Growth in the second half of 2022 amounted to a relatively modest 3.7% and finished in negative territory by the end of year, with average prices falling by 0.4% in the month of December.

With inflation figures for January still in double digits and mortgage rates now reflecting levels last seen in the aftermath of the GFC, the housing market will be relatively challenging over the coming year. However, chronic undersupply and effective discounts for overseas buyers due to a weakened pound will help to mitigate against severe price falls. In addition, lack of supply is underpinning resilience in the private rented sector (PRS), with affordability challenges in the private sales market continuing to underpin demand and rental growth.

While the forecasts of leading economists vary, all generally point to falling average prices for 2023. Forecasts range from a fairly modest price fall of -2% up to -10% for the year as whole, with most of the correction coming in the first half of 2023 and relative stability returning by year end.

Inner London lags

The wider impact of the pandemic on working patterns and housing demand continued to be reflected in 2022, albeit to a lesser degree than 2021. On a regional basis, average prices in Scotland saw the weakest growth in 2022, rising by 5.7% over the year, followed by London with annual growth of 6.7%.  In contrast, the North West and East Midlands recorded the strongest annual growth, at 12.2% and 12.3% respectively.

Across the UK’s 374 local authority districts, parts of Wales saw amongst the strongest upward price movements during 2022 - nine districts in the principality experienced double-digit annual house price growth, led by Blaenau Gwent, where prices shot up by 23%. Other notable locations for growth included Maidstone, Peterborough and West Lancashire, all of which saw average house prices increase by circa 20% over the year.

On the flipside, seven UK districts saw falling average prices during 2022, six of which were inner London districts. Westminster endured the most severe price drop of any UK district in 2022, with average prices falling by 13%. Despite this, London overall still saw average growth of 6.7% in 2022, with a weak showing in the prime central areas offset by notable price increases in the outer districts such as Bromley and Sutton, where prices grew by 10% in 2022.

Regional value contrasts

Despite weaker growth in the capital compared with most other UK regions during 2022, London maintains values at two and a half times the UK average. London’s £709 per sq ft average value is, of course, heavily skewed by central prime areas such as Kensington and Chelsea, where latest house prices translate to £1,429 per sq ft. However, even when London’s prime inner districts are excluded, the rest of London’s average value of £588 per sq ft still stands 52% above the next highest UK region of the South East, at £387 per sq ft.

The North East sits at the other end of the pricing spectrum, with the average price breaking down to £159 per sq ft. Elsewhere, latest average values across the North West, Yorkshire & the Humber, the East Midlands and West Midlands range between £200 - £240 per sq ft.

Intra-regional pricing variance

A COMPARISON WITH COMMERCIAL