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UK commercial real estate performance set to be more polarised in 2016
After a strong 2015 experts expect the performance across different parts of the UK’s commercial real estate sectors to be more polarised over the next 12 months. According to the latest analysis from Schroders it has been another good year for UK commercial real estate and unleveraged total returns are likely to be close to 15%. One of the keys to success in 2015 was rental recovery. The report explains that whilst one of the drivers was a continued favourable fall in real estate yields, the key difference to 2014 was a broad based recovery in rental values. While central London offices have led the upswing, several other cities including Brighton, Bristol, Cambridge, Manchester, Leeds and Oxford have also seen a significant increase in office rents. Likewise, industrial rents rose in many locations, boosted by growing demand from on-line retailers and parcel couriers. In contrast however, the retail sector is still adjusting to a world of multi-channel sales, the report adds. While there are pockets of rental growth in London and some tourist destinations, most centres have a significant amount of vacancy and rents were either flat, or fell slightly in 2015. The outlook for 2016 is already categorised by some commentators asking whether we are now at the top of the cycle. Schroders' head of real estate, Duncan Owen, explained that the income from commercial real estate has historically been very stable, but capital values have been cyclical. However, capital values have risen by 25% in less than three years and there is sentiment that cannot continue. ‘This sentiment is understandable, but not necessarily rational. The immediate trigger for previous downturns has been a recession, which has depressed rents and pushed up real estate yields as investors have withdrawn from the market and liquidity has dropped,’ said Owen. ‘In addition, commercial real estate has had a habit of contributing to its own downfall, either through excessive borrowing which inflated prices such as from 2005 to 2007, or because of a boom in development which left an oversupply of space, for example from 1988 to 1990, and falls in rents,’ he added. He believes that none of the usual suspects appear to yet be evident currently. ‘Looking at the economy, the outlook is positive and the consensus is that UK GDP will grow by 2.25 to 2.5% through 2016 to 2017. The main reason for being optimistic is that the UK is finally seeing a recovery in productivity, which should support a steady increase in real disposable incomes and consumer spending. Furthermore, exporters stand to gain from faster growth in the rest of the European Union, which accounts for 45% of total exports,’ Owen pointed out. His analysis also points out that there are few signs of excess borrowing. ‘In general, banks and other lenders have continued to take a disciplined approach to commercial real estate and although total loan originations in 2015 are likely to be around £50 billion, they are still… Continue reading
England and Wales house prices break new record, even as monthly growth falters
House prices in England and Wales increase £16,446 annually to £290,640, a 6% increase on November last year, according to the latest index figures. But the monthly rate of house price growth fell to 0.6%, slower than the 0.9% monthly uplift seen in October, the data from the Your Move index also shows. Excluding London and the South East, the annual rate of change drops to 4.4% but the capital is not seeing the strongest growth. While the South East overtook East Anglia as the region with the fastest growth in house prices, London dropped to fourth. The index also shows that home sales fell 15% in November, with completed sales for the year still 3.4% behind the same point in 2014. It is predicted that the Stamp Duty 3% surcharge on second homes and buy to let buyers may cause a late winter surge as these kind of buyers hurry to beat the April 2016 deadline for the new higher rate. Adrian Gill, director of Reeds Rains and Your Move estate agents, pointed out that despite being within grasping distance of the £300,000 mark, it may be a few months yet before average prices reach this symbolic level. He also pointed out that house prices in the South East have risen by an average of 7.1% this month, with values increasing in every local authority in the area. ‘It appears that the double digit price rises first seen in the prime London market, then the other London boroughs, are now rippling out even further to London’s commuter towns, with house prices in Reading rising by 18.3% and Luton increasing 17.3%,’ he explained. He believes that the housing market will need a Christmas boost to sales to beat last year’s figures. And the Chancellor’s changes could be the gift required. ‘House prices soared in the five months following Nigel Lawson’s withdrawal of the multiple mortgage tax relief in 1988,’ said Gill. ‘More recently in Scotland, after the Land and Buildings Transaction Tax was announced there was also a surge in the sales of high end properties to beat the deadline. England and Wales may now feel the same forces, as there will be a growth in demand from both first time buyers with extra financial support and buy to let landlords hoping to invest before the tax changes come into force,’ he explained. ‘While the Chancellor has planned to increase the number of houses being built, none of these will be completed in the next few months. As the number of houses on the market is at an historically low level, those rushing for the April deadline will be fighting for a decreasing number of properties. So we could see a spike in both house prices and sales over the normally frosty winter period,’ he added. He said that this potential surge in demand could be most obvious in places like Salcombe, Devon. The town has the highest percentage of second homes in England. In… Continue reading
A quarter of UK home owners call in builders to fix their DIY
UK property owners are spending an additional £42 million a year to salvage work around the home that they’ve tried to do themselves or abandoned midway through. New research from the Federation of Master Builders (FMB) shows that more than a quarter of home owners admit they have started and then abandoned home improvement jobs, with 30% calling in a tradesperson to finish or rescue the job, costing an additional £871 on average than it would have cost if they’d hired professionals at the start. Some 27% claim they have ‘given up’ on a job ever being completed with 19 months identified as the average length of time before a job is abandoned while 40% admit unfinished projects have caused arguments at home. Beyond this, almost 60% don’t even bother starting the work in the first place, continually putting off work that they’ve planned, such as kitchen and bathroom upgrades, painting and replacing windows. One in five say their attempts at home improvement projects have been ‘disastrous’, with 62% of these admitting that DIY building blunders have reduced the value of their property and a further 18% believing their properties are now harder to sell. The biggest disasters came from painting the property themselves, self-installing a kitchen or a bathroom or trying to landscape their garden. When looking at the main reasons home owners have dragged their heels, 55% say they are worried about the cost, while 30% claim they haven’t had time to organise the work. An indecisive 20% can’t decide or agree on what they want, while 17% haven’t been able to find someone to do the work. ‘While it’s noble that people want to have a go at home improvement projects themselves, our research confirms that if you don’t know what you’re doing, you’re risking not just increased costs, but also your property value not to mention your health and safety when it comes to serious builds and renovations,’ said Brian Berry, chief executive of the FMB. ‘Unfinished work and botched DIY attempts are increasingly cited as reasons people turn to FMB members, so we urge home owners to be realistic about what they are capable of doing,’ he added. Continue reading
