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London commercial property market expected to see strongest rental growth in 2015
London’s commercial property market experienced the strongest rental growth in 2014 and is expected it to stay in the lead over the next 12 months, according to a new outlook report. The recovery in the UK economy combined with low levels of development means that the balance between demand and supply is now swinging in favour of landlords, the report from Schroders also says. Risks to the positive outlook include the possibility that UK economic growth is much weaker than forecast, so that the upswing in rents stalls rather than accelerates. ‘While rental growth outside London is patchier, some regional markets are definitely coming out of hibernation. Given a reasonably high yield and a further rental growth as the economy improves, we expect that next year will see another solid performance from UK commercial real estate,’ said the firm’s head of real estate Duncan Owen. The report says that 2014 has been a good year for UK commercial real estate and unleveraged total returns are likely to be close to 20%. Most of this year’s performance has been driven by a favourable fall in property yields, as investors seek income. ‘Looking ahead to 2015 we expect that total returns will remain in double figures, but that rental growth will make a larger contribution. The recovery in the economy combined with low levels of development means that the balance between demand and supply is now swinging in favour of landlords and we anticipate that rental growth will accelerate,’ explained Owen. In the office sector, the emergence of central London as a powerhouse for international accountancy, law, media and technology companies has pushed vacancy rates back down to pre-crisis levels, not just in the prime locations of the City and West End, but also in less established areas such as Farringdon, Kings Cross and the South Bank, the outlook explains. ‘In previous cycles this squeeze on space and upswing in rents would have triggered a big increase in development and encouraged companies to move to cheaper offices in outer London, or other cities. However, so far we have seen relatively little new office building in central London, partly because stricter capital adequacy rules mean that banks are now less willing to fund projects and partly because competing residential schemes are often more profitable,’ Owen pointed out. ‘Moreover, central London now has such a deep pool of highly qualified labour that some companies are even re-locating to the centre from outer London or the wider South East, even though rents and business rates are more expensive,’ he added. Similarly, the report says that retail rents in many parts of London are rising on the back of strong population growth. There are also an increasing numbers of young professionals who choose to live in inner London rather than copy their parents and move to the suburbs. This is leading to the rapid gentrification of areas such as Brixton, Hackney and New Cross which were previously relatively poor. While rental… Continue reading
Negative equity in US housing market falls considerably
Most major housing markets in the US have seen the number of home owners in negative fall by half since the peak of the economic crisis, new figures show. More than seven million home owners have escaped negative equity since its peak in early 2012, both because of foreclosures and improving home values, says the data from real estate firm Zillow. Overall US negative equity fell to 16.9% in the third quarter, down significantly from its peak of 31.4% in the first quarter of 2012. Zillow expects the negative equity rate will continue to fall to 15.2% by the end of the third quarter of 2015. Roughly 8.7 million home owners remain trapped underwater on their mortgages, but the negative equity rate has halved since 2012 in the markets hit hardest by the recession including Miami, Atlanta, Detroit, Riverside in California and Las Vegas. The firm points out that declining negative equity will have a ripple effect in the housing market, allowing previously stuck homeowners to list their homes for sale and adding to overall for sale inventory just as millennial buyers are expected to begin to enter the market en masse in coming months and years. This new inventory will also help slow home value appreciation, which has been fuelled by high demand for homes and low supply. ‘The market has made terrific strides since bottoming out in late 2011 and early 2012, with millions of underwater home owners freed in just the past few years, and millions more set to surface in coming months and years,’ said Zillow chief economist Stan Humphries. ‘Looking at negative equity helps us understand so many of the currently out of whack dynamics in the housing market, including low inventory, rapid home value appreciation and weak sales volumes,’ he explained. ‘None of these problems will be solved overnight, in large part because negative equity will likely be a part of the housing market for years, and easily into the next decade in some hard-hit areas. But we're moving in the right direction, and time will heal all wounds,’ he added. The research also shows that owners of less expensive homes were more likely to be underwater in the third quarter than owners of more expensive homes, in some cases, much more likely. In Detroit, for example, 49.2% of homes valued in the bottom price tier were underwater, while just 7.6% of the area's highest priced homes were upside down. Similarly, in Chicago, 41.4% of bottom tier homes were in negative equity, compared to 23.9% of middle tier homes and 10.4% of top tier homes. Nationwide, 27.4% of bottom tier homes were in negative equity in the third quarter, compared to 15.7% of middle tier homes and 9.3% of top tier homes. Continue reading
House lending in UK expected to grow in 2015 and 2016, but more slowly
The Council of Mortgage Lenders (CML) has issues a confident outlook report for 2105 and says it expects mortgage lending to grow in the next two years but more slowly than this year. Gross and net lending of £240 billion and £38 billion respectively in 2016 would nevertheless represent the strongest performances since 2008 and it adds that a gentle upward trajectory for the mortgage market going forwards should calm macro-prudential concerns. ‘The proportion of cash financed transactions has shown signs of stabilising in 2014, and may decline gently as mortgage availability continues to improve. Prospects for economic growth, job creation and a pick-up in earnings are relatively positive, and these factors, along with the easing in interest rate expectations over recent months, should underpin housing market sentiment,’ the report explains. It also welcomes the form of stamp duty announced by the Chancellor George Osborne in his autumn statement and said that this will also benefit lending activity in the short term. However, it also points out that housing market activity has nudged lower since the summer but this is consistent with the long standing view that affordability considerations would limit the scope for transactions to return to longer-run norms. ‘We expect the pace of house purchase in 2015 and 2016 to be a little below this year’s level,’ it adds. When it comes to buy to let, the CML says lending in this sector should continue to make some headway, although this may be limited by uncertainties about the appetite to regulate it or the activities of landlords more generally. Some further improvement in mortgage arrears and possessions is possible in 2015, before a relatively modest reversal as interest rates increase gently through the second half of our forecasting period. Ales could fall. ‘Reflecting the uncertainties about wider economic developments and housing activity beyond the next few months, we think that transactions will ease back modestly in 2015 and thereafter broadly settle,’ the forecast points out. It also points out that cash based transactions have grown in importance to account for more than a third of market sales, with the reduced availability of mortgage credit following the credit crunch. The cash proportion of sales peaked at nearly 36% in 2013 and in 2014 as mortgage credit availability has improved, mortgage financed transactions have grown at more or less the same pace as cash transactions, and so the latter’s proportion has remained fairly steady. ‘Looking ahead, we anticipate that cash transactions will progressively edge back down nearer to a third of sales, and so to a limited degree allow for a softer decrease in the volume of mortgage financed sales than for the overall market,’ the report adds. With typical loan size echoing some further modest increases in house prices, the CML expects the value of lending for regulated house purchase to move a little higher to about £120 billion in 2015 compared with £115 billion in 2014. ‘We have pencilled… Continue reading
