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UK retail property market needs to take online shopping into account in 2015
A dwindling supply of well-located retail property stock in the UK will continue to drive South East and London rental growth, which will be factored into pricing by investors, according to a new analysis. Well-placed good secondary retail assets with solid demographics, will sell well and overall schemes with the broadest consumer appeal will thrive at the expense of the poorer quality ones, says the latest UK retail property market outlook 2015 report from Knight Frank. Key attributes could be the quality of tenant mix and accessibility, although the out of town market has moved steadily towards fun shopping, the report suggests. ‘As we have seen with high streets and shopping centres, the best out of town parks now provide an increased focus on a strong leisure and catering offer aimed at prolonging dwell times and boosting expenditure, the report explains. One potential cloud on the horizon, with the growth of online sales bringing store networks under ever increasing scrutiny, is the forthcoming rush of lease expiries will provide retailers with an unprecedented opportunity to reduce property costs by downsizing their portfolios. ‘This is likely to reinforce the polarisation already being seen in the market, with secondary/weaker schemes suffering at the expense of the better schemes, bringing with it greater divergence in investment performance. That said, while the rise of online shopping may result in smaller store portfolios, the growth in click and collect is helping to maintain the importance of the store,’ the report adds. Knight Frank predicts that omni channel retailing will become the dominant norm in 2015. Occupiers will need to implement in store technology advancements in order to keep the consumer engaged and enhance the customer experience. Retailers should embrace strategies in which mobile, online and in-store experiences should complement, rather than compete with, one another. The firm also predicts that the first half of 2015 is likely to be dominated by uncertainty surrounding the general election. However, retail sales will receive a boost from a buoyant labour market, lower inflation on the back of the fall in oil prices. Slower but still positive house price growth will continue to support strong consumer confidence. But the retail market continues to be driven by structural change due to the growth of online shopping and profit margins for bricks and mortar retailers will continue to be squeezed by non-store sales and an increasingly internet savvy population. The news that the Chancellor in his Autumn budget will cap the inflation linked increase in business rates to 2% and undertake a full review of the structure of business rates is welcome news to the retail sector, according to the report. ‘However, fundamental changes need to be implemented going forward especially with consumer’s increasing preference to shop and buy online rather than in store,’ it adds. Continue reading
US home owners more confident than those who rent, new analysis suggests
Home owners in the United States are generally more confident than renters in their local housing market’s performance, according to the latest research from Zillow. But this confidence gap is widening in areas with rapid home value growth and narrowing in areas with more restrained growth, the firm says. Overall home owners have become more confident about their decision to invest in a home where home values in their area have increased more rapidly. By contrast, renters feel that they cannot escape renting and have lowered their aspirations for homeownership in areas where home values have increased more rapidly. Rapidly rising home values have powerful psychological effects on both home owners and renters and research has shown peoples’ expectations about the future are strongly anchored in recent experience. Rapid asset price growth can contribute to what has sometimes been labelled ‘irrational exuberance’, or overly optimistic and self-perpetuating positive feedback in price trends. Zillow’s Housing Confidence Index (ZHCI) is designed to be a forward looking measure of housing market health by gauging the beliefs and aspirations of home owners and renters towards the future state of the housing market. There are two groups, those that have experienced rapid recent home value growth in excess of 9% annually between July 2013 and July 2014, when the survey was last conducted, and those that have experienced more restrained growth of less than 9% over the same period. By this classification, nine metro areas have experienced rapid home value growth and in general, the ZHCI is higher for home owners than for renters. The firm says this is not surprising since, relative to renters, home owners typically have higher incomes and a more optimistic perspective about the economy and housing market. But as the economy has improved, the gap between home owners’ and renters’ confidence index levels has widened in metros where home value growth has been rapid, and narrowed in metros where home value growth has been more restrained. Home owners and renters have very similar perspectives on the overall housing market and the ZHCIs for both groups tend to move together. A larger improvement in outlook among renters is the primary driver of converging optimism levels in slow home value growth markets. But the opposite is true in markets where home values are growing more rapidly. In these markets, optimism levels are diverging. Because home owners’ wealth is largely tied to the value of their home, slower home value growth results in a smaller change in home owners’ housing market outlook. In markets where home values are appreciating at a slower pace, renters have become increasingly optimistic about their potential for future home ownership. The Home ownership Aspirations Index, which measures how optimistic owners and renters are about their future home ownership prospects, increased more for renters in slow growth markets than for home owners. But in markets where home values are rising rapidly, renters are becoming increasingly disillusioned, as they likely see the possibility for future… Continue reading
London residential property investors looking north for better rental yields
Almost two thirds of buyers of investment property in the North of England are from the South East, with over a third from the Greater London area, new research has found. The study from buy to let specialist Sequre Property Investment, suggests that prices are too high in the south for landlords who may be looking north for bargains. According to the firm they are being enticed out of their own back yard to cities such as Manchester, Liverpool, Preston and Salford by stronger returns and lower entry level prices. Average gross yields of 8% in Manchester compare to 4.5% in London, while a typical two bed investment property costs in the region of £90,000 versus £300,000 in the capital. It also says that speculation of a cooling property market in London and the South East is impacting on investor confidence and driving them to seek alternative locations such as northern cities, where prices have risen at a more sustainable rate and demand from tenants, particularly young professionals, remains strong. The relocation of the BBC and developments such as MediaCityUK have also helped boost the profile of the North and attracted investors from outside the region. Of those London based investors buying in the North, a significant proportion, 42%, are cash buyers. The firm says this is largely due to the lower entry point which means that many investors don't require borrowing. They are keen to de-risk the investment and avoid overleveraging, particularly as many are approaching retirement age and are looking to boost their retirement income One, two and three bedroom buy to let properties in new build developments of up to five years old are most popular, offering a low maintenance and hassle free investment. ‘The buy to let market in the North of England, particularly in hubs such as Manchester and Liverpool, is now being driven largely by money from London and the South East,’ said Graham Davidson, director of Sequre Property Investment. ‘Investors have benefited from huge house price growth in the south over the last few years which has sent the equity in their homes and buy to let portfolios soaring. Now they are seeking new investments which will deliver strong rental returns as well as steady capital growth, at a time when doubt is being cast over the future of the London market,’ he explained. ‘These are mainly professional investors who are comfortable with a 'hands off' approach and are unconcerned about owning property in different locations. It's all about the rental returns and delivering a secure monthly income,’ he added. An example is IT consultant Matthew Earle, 35, who lives in south west London and is currently in the process of adding a number of new investment properties in the north of England to his portfolio. These are spread across northern cities including Manchester, Hull and Sheffield. ‘My main focus is on generating a strong rental income and there's no doubt that yields are much higher in the… Continue reading
