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UK commercial property investment return falls slightly
Total return on investment in UK commercial property fell to 1.2% in July from 1.3% in June, according to the latest CBRE Monthly Index. July’s fall was mainly a result of weaker performance from central London, but despite this monthly fall, over the last 12 months rental value growth in central London offices has now reached a post-recessionary high of 9.65%. Overall rental and capital values continued to grow in July, but did so at a reduced rate, with rental values growing at 0.3%, slower than the 0.5% for June, and capital values growing at 0.7%, down from 0.9% the previous month. The office sector was one of the biggest movers in July. While the market recorded another month of good performance, after a strong second quarter, July’s returns fell from 1.8% in June to 1.3%. The report says that this was largely down to the central London market, where total return fell to 1.1% from 1.7% the month before. Total returns were also down in outer London/M25 and the rest of UK, but not to the same extent as in central London. Overall, however, the central London office market is booming. Annual rental growth for the 12 months to July 2015 is now at a post-recessionary high of 9.65%, overtaking the previous peak in the year to October 2011 of 7.13%. Central London offices now have the highest rental growth of all UK commercial property markets over the last 12 months, driven by 12.48% growth in the City, and 10.52% growth in Midtown. ‘Despite the slight dip in July, office rents and capital values in central London market have been growing strongly over the last year. As a result of this performance, investment into the market has grown from £2.4 million in in the first quarter of 2015 to £4 million in the second quarter,’ said Michael Haddock, senior director of CBRE. ‘The high level of competition for central London assets means that investors, both local and foreign, are increasingly looking at opportunities in the rest of the UK and activity has been growing at an even faster rate outside London,’ he added. High street shops and industrials also recorded positive rental growth, but with some marked geographical divergence across the UK. In both sectors, the South East outperformed the rest of the UK. Rental value growth for high street shops increased from 0.2% to 0.5% in the South East, while rental values for the rest of the UK were flat for the month. Similarly, the industrial sector recorded 0.7% rental value growth in South East up from 0.5% the month before, while the growth rate fell in the rest of the country from 0.4% to 0.2%. Continue reading
Renting a home in the US less affordable than ever, new research suggests
Renting a home in the United States is less affordable than ever before with tenants paying 30% more of their income on paying for their home compared with home owners at 15%, new research shows. Mortgages remain affordable by historical standards while rent is unaffordable in three quarters of housing markets, especially high demand locations in Miami, San Francisco and San Jose, according to the latest report from real estate firm Zillow. It also shows that rental affordability worsened year on year in 28 of the 35 largest metro areas covered by the Zillow index while Denver, Los Angeles, San Francisco, San Jose and San Diego are unaffordable for both renters and buyers. Overall in the second quarter of 2015 renters paid some 30.2% of their monthly income toward rent, the highest percentage ever. Before the real estate downturn tenants could expect to spend about 24.4% of their incomes on rent. In contrast, buyers pay 15.1% of their income towards mortgage payments, which is still less than what they spent historically. From 1985 through 2000, home owners spent about 21.3% of their monthly income on mortgage payments. In Denver and four California metros, both renters and buyers can expect to pay more of their income towards either rent or mortgage payments than in pre-bubble years. In San Jose, renters and buyers should each plan to put about 42% of their incomes towards housing. ‘Our research found that unaffordable rents are making it hard for people to save for a down payment and retirement, and that people whose rent is unaffordable are more likely to skip out on their own healthcare,’ said Zillow chief economist Svenja Gudell. ‘There are good reasons to rent temporarily, for example when moving to a new city, but from an affordability perspective, rents are crazy right now. If you can possibly come up with a down payment, then it's a good time to buy a home and start putting your money toward a mortgage,’ added Gudell. The Zillow report says that mortgage payments will continue to be affordable even if mortgage rates rise as expected. If rates reach 6% next year, home buyers can still expect to spend 30% or less of their income on mortgage payments in 265 out of 290 or 91.4% of the metros Zillow analysed, and mortgage payments will be considered more affordable than in pre-bubble years in 72.1% of metros. Rents, on the other hand, are already unaffordable compared to historic norms in 77% of metros, and with relatively stagnant wage growth, this likely won't improve as rents keep climbing. Continue reading
Growing demand and short supply is pushing up house prices, says RICS
House prices in the UK continue to be squeezed higher by growing demand and contracting supply, according to the latest residential market survey from the Royal Institution of Chartered Surveyors (RICS). The report shows that while 44% more chartered surveyors saw prices rise in July, supply to the market continued the decline with 22% more surveyors reporting a drop in new instructions. Additionally, the shortage of housing inventory worsened further during July, with the average number of properties for sale per surveyor slipping to a record low. Consequently, all areas of the UK are projected to see sizeable house price gains over the next 12 months, with confidence most elevated in East Anglia and Northern Ireland. The report also says that near term expectations for prices also continue to reflect the imbalance between demand and supply with 41% of members expecting prices to continue to rise over the next three months. However, rising prices have not dampened interest as new buyer enquiries rose for the fourth month in succession, with 25% of respondents reporting a rise in demand. Despite this steady and sustained improvement in demand, newly agreed sales were more or less unchanged at the national level in July. Going forward, there is a little more optimism regarding the prospects for activity with 37% more respondents expecting sales to gain momentum over the next three months and 40% more taking the same view on a one year perspective. ‘This government has put home ownership at the very heart of its agenda, with Starter Homes and extending Right to Buy the strongest evidence of that ambition. However, this continues to be demand driven and fails to address the real issue of supply,’ said Jeremy Blackburn, RICS Head of Policy ‘A coherent and coordinated house building strategy is required across all tenures. This should include measures that will kick start the supply side, such as mapping brownfield, addressing planning restrictions and creating a housing observatory to assess the underlying economic and social drivers of housing and provide the impetus for solutions,’ he explained. ‘The changes brought in through Fixing the Foundations, the Chancellor’s productivity plan, were welcome and refreshingly on the supply side, such as zonal planning, dispute resolution for S106 and local plan enforcement. But these alone are not a strategy for increasing housing supply across all tenures,’ he added. Blackburn also pointed out that in the lettings market, tenant demand continued to rise while landlord instructions, despite increasing slightly, failed to keep pace once more. As a result 34 % of respondents expect rents to increase right across the UK with members in the West Midlands expecting 4% growth over the next year and in the South East 3.3% growth. The housing market is facing some very real challenges, according to Simon Rubinsohn, RICS chief economist, but more worrying still is the suspicion that the imbalance between supply and demand will lead to even strong price gains over the next 12 months. ‘This… Continue reading
