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‘Generation Rent’ is reshaping the UK property market

by Matt P on April 1, 2019

Source: Business Leader

Two of the big trends transforming the British property landscape today are the rise of ‘Generation Rent’ and the falling number of retail stores on UK high streets. Both are leading to a radically changed outlook for businesses in urban areas.

For property investors, owners and occupiers, the combination of these two shifts provides genuine hope for the revitalisation of the high street. What we are seeing is that UK town and city centres will increasingly become a place to live, work, play (and shop), as ‘Generation Rent’ is stimulating increased demand for residential rentals in these areas.

The most recent MRI Software research into the UK marketplace shows that city and town centres are where ‘Generation Rent’ – the Gen Z and Millennial renters who have been priced out of the home purchase market – want to live. Nine in ten (91%) of the top executives and managers in the property sector surveyed by MRI say ‘Generation Rent’ prefer to live in town and city centres, so they can have easy access to amenities that suit their lifestyle – such as gyms, cafes and bars, shops and services.

Rising house prices may be a root cause of preventing younger generations from being able to step onto the property ladder – but it’s also the case that as more people rent and the market expands, so too does the choice and quality available. Indeed, a recent Knight Frank report revealed that more than 10% of tenants say renting enables them to live in an area they could not otherwise afford. The result is renting becomes a more attractive proposition and a longer-term choice.

We are seeing, increasingly, that the standards ‘Generation Rent’ are demanding in rental accommodation promise to reshape the market and bring in a new level of professionalised property management. Four out of five (82%) of the senior property professionals surveyed say ‘Generation Rent’ is here to stay with little likelihood buying conditions will improve.

A greater demand for high-quality residential property, close to retail and leisure outlets, is music to the ears of investors and owners with interest in urban property. According to the MRI survey:

  • 82% of say projects to redevelop former retail premises to create mixed-use properties, including residential, will be a lucrative opportunity over the next 12-18 months
  • 72% see residential development former retail premises as the route to giving the British High Street “a new lease of life”
  • 90% say residential rentals in UK town and city centres will become increasingly important for property owners

This trend is demonstrated by news in recent months that major property players such as Intu, Aberdeen Standard Investments and Redevco are committing significant resource to residential development in these types of areas in the UK. In fact, two-thirds (66%) of the senior property professionals surveyed think ex-retail property could be the biggest untapped resource for new residential development in the UK. What’s more, increasingly we are seeing these recognised names turn their attentions to potentially lucrative ‘Build-to-Rent’ developments in UK towns and cities.

And how does this help retail? While the challenges faced by the sector won’t be solved overnight by an ongoing shift to residential, the trend will provide a significant boost to property owners with premises along Britain’s beleaguered high streets. Additionally, in the long term, more people living in town centres will enhance opportunities for occupiers of retail space – and other physical locations such as coffee shops, health clubs and entertainment venues.

Ultimately, much of what we’re talking about here is future opportunity. For investors, owners and occupiers of mixed-use space to all realise the benefits, there will have to be a level of collaboration and that has perhaps never been seen before in the UK property sector.

Technology, which is a pillar of the flexible ‘work, live, play’ culture that is driving the change, will play a major role in enabling all of the stakeholders to manage the transition and build a successful and sustainable model. With these systems in place, organisations can turn data into genuine insight to truly understand what facilities and services prospective and existing tenants want – and whether, for example, a downstairs coffee shop or a gym will drive higher rents and occupancies.

This level of diversification will not be without its challenges, but if businesses are willing to adapt, then the potential benefits are there for all to see.

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Matt P‘Generation Rent’ is reshaping the UK property market

UK Economy Seen Gaining Momentum in First-quarter

by Matt P on April 1, 2019

Source: Pound Sterling Live

Q4 growth confirmed at 0.2%, 2018 growth revised up to 1.4%.

– Forecasts for Q1 are rising, and BoE still wants to raise rates.

– But financial markets are flirting with pricing-in interest rate cuts.

The UK economy slowed in the final quarter of last year but growth during 2018 as a whole was faster than previously thought, according to data released on Friday by the Office for National Statistics, and economists are forecasting a pick-up for the current quarter too.

The ONS says the economy grew just 0.2% in the final quarter, down from an upwardly-revised 0.7% in the previous period, but statisticians revised their estimate of 2018 growth up to 1.4%. It was previously reported as 1.3%.

“The broad contours of the expenditure breakdown haven’t changed, with increases in household and government spending offsetting drags from investment and net trade. Quarter-on-quarter growth in households’ spending was revised down to 0.3%, from 0.4%, but we now know that the increase was fully funded out of income gains,” says Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

The services sector was the main driver of growth in the final quarter, with output rising 0.5%, aided by the household and government spending. Output from the industrial sector fell -0.8%, with all areas of production also seeing declines.

Net exports and business investment were negative too, weighing on the economy in the final quarter. Much of the 2018 slowdown was seen in the first and final quarters, with bad weather crimping growth early in the year and with a range of factors weighing by year-end.

The UK’s still elusive exit from the EU is widely reported to have encouraged a decline in business investment throughout 2018, while President Donald Trump’s trade war with China and a global economic slowdown overseas could easily have weighed on exports.

“Despite the ongoing impasse in Westminster on Brexit, weak GDP growth of 0.2% q/q at the end of last year probably marks a trough. The robust monthly increase in GDP in January and indications consumer spending has picked up further since suggest that growth ticked up to 0.3% q/q in Q1,” says Andrew Wishart, an economis at Capital Economics.

Other ONS figures released in March showed the economy entering 2019 on the front foot, with GDP growth rising 0.5% in January alone. Capital Economics is not alone in forecasting that says growth should have picked in the first quarter either.

“There is tentative evidence of a pick-up in stockpiling pre-Brexit—inventories rose in Q4 by the most since Q4 2016—but we are sceptical it is providing any real support to GDP growth, given that hoarded goods will be imported. Looking ahead, we expect Q1 to be a carbon copy of Q4, with growth in households’ spending ticking over despite Brexit uncertainty, but investment and net trade continuing to drag on growth,” says Pantheon’s Tombs, who also forecasts GDP growth of 0.3% for the first quarter.

An economic pick up in the first quarter could be enough for markets to begin taking the Bank of England (BoE) a bit more seriously when it says that it wants to raise Bank Rate in order to safeguard the inflation target against a challenge from the consumer price index. Rising and sustained economic growth encourages inflation.

The bank has said exactly that on repeated occasions in recent months but financial markets have recently begun speculating there is a chance the BoE could be forced to cut interest rates over the coming months. The overnight-index-swap-implied Bank Rate for December 19, 2019 was just 0.67% on Friday, beneath the current 0.75%.

“If the economy performs as we expect, we think upward pressure on prices will build over the next few years and we will need to raise interest rates a bit more to keep inflation low,” the bank says on its website. “Our view is based on the assumption that there will be a smooth Brexit where households and businesses have time to adjust to the new relationship between the UK and the EU.”

The market’s more pessimistic view could have more to do with international factors than it does the domestic economy. All developed world central banks have in recent months all-but abandoned any plans they once had for interest rate hikes this year.

Central banks in Australia and New Zealand are even warning that they could cut interest rates this year. Against that backdrop, the market-implied Bank Rate could simply be investors calling the Bank of England’s bluff as far as its interest rate guidance goes.

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Matt PUK Economy Seen Gaining Momentum in First-quarter

UK economy grows at fastest rate since 2016

by International Commercial Investment on December 11, 2018

Source:  Financial Times

The UK economy accelerated to its fastest quarterly growth rate in almost two years over the summer but economists warned that with Brexit uncertainties curbing spending, the performance would soon decline.

The amount of goods and services produced in Britain grew 0.6 per cent in the third quarter of the year, following 0.4 per cent in the previous three months, and considerably higher than the recent trend.

But the economy lost momentum towards the end of the third quarter: growth in gross domestic product fell to zero in August and September, according to official data.Suren Thiru, head of economics at the British Chambers of Commerce, said the economy’s strength over the summer had been caused by several temporary factors, including the heatwave, the football World Cup and a royal wedding.

“Persistent Brexit uncertainty and the financial squeeze on consumers and businesses [are] likely to weigh increasingly on economic activity in the coming quarters,” he added.

In the three months to September 30, exports and household spending were strong, offset by declining business investment, which fell for the third consecutive quarter.Philip Hammond, chancellor, said the data from the Office for National Statistics demonstrated “underlying strength in our economy”.

But some economists pointed to recent weak business surveys, which suggested the summer was an unusual period.George Buckley, economist at Nomura, said the most concerning element of the ONS data was the 1.2 per cent drop in business investment in the third quarter.

He added that “expectations for the final quarter of the year should be for something materially less than the 0.6 per cent quarterly growth rate we’ve seen today”.

Yael Selfin, economist of KPMG, said “the upward momentum we have seen this quarter is unlikely to last . . . as uncertainty around Brexit puts downward pressure on investment and relatively weak households’ finances rein in consumer spending”.

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International Commercial InvestmentUK economy grows at fastest rate since 2016

Overseas money still piling into the UK property market

by International Commercial Investment on December 11, 2018

Source: Investors Chronicle

Potential housebuyers in the UK seem to be sitting on their hands right now, and you can guess any number of reasons why, from Brexit to interest rate worries or concerns over the health of the UK economy. Overseas buyers don’t quite see it that way, and this year a third of all homes bought in the UK for £1m or more were snapped up by foreign investors as second homes.

Forget about higher stamp duty and capital gains liabilities, investors from Russia, the Middle East and the Far East especially are homing in on the UK and London in particular. Some of the attraction comes from the fact that expensive homes have fallen in value, which for an overseas buyer comes on top of sterling weakness. So, it’s good news at the Treasury because in the past year the percentage of stamp duty income gathered from second home buyers in this price bracket has jumped from just under 30 per cent to 50 per cent. In fact, income generated through the additional 3 per cent stamp duty has risen by over 20 per cent in 2018 so far to over £4bn. And if you include houses in all price brackets, over 40 per cent of total receipts came from second home purchases.

London has always been seen as a handy place to park funds because it is relatively safe both politically and economically. But these funds are also being put to work because three-quarters of overseas purchases were made for buy-to-let. More than a quarter of second homes worth over £1m were bought in London, with the largest amount of stamp duty generated in Westminster at £594m.

Back in the real world, the number of existing homes coming on to the market is very close to an all-time low, with sales volume either flat or negative across 11 of the UK’s 12 regions. At the same time, tenant demand for rented properties is holding up well, but rents could be pushed higher because the number of landlord instructions has continued to fall, recording the 10th straight quarter of decline, the longest negative stretch since the series was created in 1999, according to the Royal Institution of Chartered Surveyors.

Looking a little further back, however, shows that real rents adjusted for inflation have fallen 2.2 per cent in the past 10 years, according to Countrywide (CWD) subsidiary Hamptons International. In that time, rents have risen by 22 per cent but inflation has climbed 24 per cent. That inflation outpaced rental growth to some extent reflects the fact that the start of the 10-year period covered the wake of the financial crash, which gave landlords little opportunity to push rents higher. The east of England and London are the only regions where rental growth has outpaced inflation, whereas in the Midlands real rents over the 10-year period fell by 7.8 per cent. However, rental growth on new-let properties reached 2 per cent in October this year, the highest level since February, as every region recorded a rise in rents. The biggest gain came in the east of England at 3.9 per cent. And even London chipped in with the second monthly gains in a row, giving a year-on-year increase of 1.4 per cent.

Given the current atmosphere of uncertainty, the gains may seem puzzling, but the reality could be that rents are climbing because supply is falling. As more small landlords exit the market following heavier taxation, the number of homes for rent is falling just at the same time as demand is increasing.

It may well be that the government is leaning towards bigger corporate landlords making up the shortfall, and steps have also been taken to stimulate more government-funded social housing. Major housebuilders are also getting in on the act, by forming partnerships with local authorities to build on council-owned land, while a number of private institutions are forging ahead with build-to-rent schemes through forward funding arrangements with housebuilders. The big question now is whether this will all be enough to fill the gap. With supply in continued decline, rents are forecast to rise by 15 per cent over the next five years, which is generally bad news for tenants. Especially so because since 1991 the number of homeowners between the ages of 16 and 34 has dropped from 51 per cent to just 24 per cent, while renters in the same age group have risen from 56 per cent to 73 per cent.

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International Commercial InvestmentOverseas money still piling into the UK property market

Growing young populations will influence UK property hotspots in 2019

by International Commercial Investment on December 11, 2018

Source: Buy Association

On a positive note, it identified that property investors in 2019 should look to key regional cities that will offer ‘Brexit-proof’ investment potential.  Underpinning these important metropolitan hotspots is a trend for inner city urban living and growing youthful populations which will provide an ongoing supply of would be homebuyers and tenants.

Surrenden Invest believes that the UK is as prepared as it can be to ensure that property investment continues as business as usual in the year head.

Jonathan Stephens, managing director at Surrenden, said, “Nobody can ever see what the future holds, that’s the case regardless of Brexit. As such, looking ahead to likely investment hotspots is a case of examining the underlying market fundamentals.

“For 2019, that means cities with youthful populations and strong trends for city centre living. The UK’s rental sector is still growing, so 2019’s hotspots will be those areas in which populations are expanding rapidly, and where employment prospects are sound.”

2019 property investment hotspots

By 2041, Birmingham’s population is set to rise by 14.5% reaching 1,313,300; it currently stands at 1,147,300.  Already boasting a 65,000-strong student talent pool across five university campuses; the city has the sixth highest graduate retention rate of any city in the UK.  As a result, Birmingham benefits from a vast pipeline of future workers and entrepreneurial talent.

In the last five years Birmingham has seen property prices rise by 29.46%.

As the city centre continues to expand the demand for quality new build homes and developments will continue to attract attention; exciting new scheme like Westminster Works in prime locations are and will be, in high demand.

Manchester is mirroring Birmingham’s growth

Manchester is in line to see the population rise by 14.1% increase between 2018 and 2041 with property prices up by over 30 % since 2013. It is already ranked (as part of the Manchester-Liverpool metropolitan region) in IBM’s list of top ten global destinations for foreign direct investment in 2017.

The city is second only to London in terms of its graduate returners running at 58%, as well as its influx of graduates with no prior connection to the city. Amazon chose Manchester as the site of its first Amazon Academy, running a series of programmes and events designed to help hundreds of small, local businesses.

Creative young professionals will be sure to look to future residential developments in the city centre such as Ancoats Gardens, to immerse themselves in Manchester’s community.

Over the next 25 years or so, London’s population is projected to increase by 15.4% which will push up demand for housing across the capital.

Over the past five years London property prices have risen by 32.36%. According to PWC, 60% of Londoners will rent their homes by 2025, with the city’s professionals renting in higher numbers.

Liverpool is on track to experience a population increase of 12.0% between now and 2041 seeing its current population of 495,300 grow to 554,500 in 2041.  The city’s booming service sector, healthcare sector and knowledge economy attracts talented young professionals;

42% of Liverpool’s population are under 30 compared with a UK average of 37%.

It is a city driven by youth and an entrepreneurial movement that has accelerated a major regeneration.  Centrally located developments such as The Tannery aim to provide contemporary housing within easy reach of Liverpool’s rich cultural scene.

According to Centre for Cities, Newcastle city centre enjoyed population growth of 112% between 2002 and 2015. It projected population in 2041 is 318,100 from 297,400 in 2018.

The massive spike in demand for city centre living is creating a hotbed of innovation within the housing sector, as developments compete to attract a younger generation, who work in the city and want prime housing in the heart of Newcastle.

Student numbers at Newcastle University have shot up by over 70% since 2000, while Northumbria University has seen student numbers expand by over 114% over the same period. With nearly 50,000 students in total, a full sixth of the city’s population is engaged in study with many choosing to remain living in the city after graduating.

Jonathan Stephens, Managing director at Surrenden Invest said:

“Each of these cities has its own distinctive culture, which is drawing in young people who will ultimately contribute to the future success of that city.

“Those working in the housing sector need to respond accordingly, delivering high quality homes in central areas, in order to meet the demand that these young people are driving.”

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International Commercial InvestmentGrowing young populations will influence UK property hotspots in 2019

Surge in London house building set to drive new UK homes to 11-year high

by International Commercial Investment on November 2, 2018

Source: City A.M

London is set to drive a surge in UK house building as the industry prepares for the number of new homes being built to hit an 11-year high.

Large-scale developments and private sector rental demand are set to drive the number of new house builds in the capital up by 141 per cent, according to data about new homes registered by UK builders in the three months to September.

This jump will underpin a 15 per cent rise in new homes across the UK, the National House Building Council (NHBC) said, with 43,578 properties set to be built – the largest number since before the financial crisis.

Steve Catt, senior regional director for England at NHBC, said: “The industry has enjoyed a good quarter, with the main growth for England driven by the strong numbers coming through in London and the south east.”

“There was also considerable growth for Yorkshire & Humberside and the south west when comparing registration numbers from the same period last year,” he added.

“Both the private and affordable sectors performed well and the signs are looking good for the final months of the year.”

The news comes as London’s property market has faced a recent slump, after house price growth slumped to a five-year low last month, according to Nationwide data.

Third quarter house prices in London fell 0.7 per cent year on year, while the average UK property price increased by 2.1 per cent.

At the top end of the market, Kensington and Chelsea has seen the biggest UK price fall of 4.9 per cent to an average £1.17m over the past year.

Estate agents have cited stamp duty changes and concerns over Brexit as reasons for the slowdown in demand.

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International Commercial InvestmentSurge in London house building set to drive new UK homes to 11-year high

UK house prices set to rise by almost 15% in 5 years

by International Commercial Investment on November 2, 2018

Source: Property Wire

UK house prices are set to rise broadly in line with incomes over the next five years, but the traditional North/South divide will turn on its head, according to new outlook forecasts.

While overall prices are predicted to rise by 14.8% in the UK from 2019 to 2023, the Midlands, the North and Scotland are expected to see the strongest increases, according to the analysis from international real estate adviser Savills.

But Brexit will continue to impact sentiment over the short term, particularly in London and its commuter belt, but local market affordability is expected to determine the pattern of price growth over the longer term, the firm says.

The forecast also suggests that the range of growth could be from 21.6% in the North West to single digit growth in London and the South, But values in the capital’s prime market will perform much more strongly, given price adjustments already seen in those market since 2014, the firm says.

Other regions have been much slower to recover since the global economic downturn and some have only recently returned to peak values so house prices are therefore more affordable, with greater capacity for loan to income ratios to increase, it also points out.

‘Brexit angst is a major factor for market sentiment right now, particularly in London, but it’s the legacy of the global financial crisis, with mortgage regulation in particular, combined with gradually rising interest rates that will really shape the market over the longer term. That legacy will limit house price growth, but it should also protect the market from a correction,’ said Lucian Cook, Savills head of residential research.

A breakdown of the figures show that over the five years the strongest price growth is likely to be 21.6% in the North West, followed by 20.5% in Yorkshire and Humberside, and 19.3% in the East Midlands, the West Midlands and Wales.

It also predicts five year growth of 18.2% in Scotland, 17.6% in the North East, 12.6% in the South West, 9.3% in both the South East and the East of England, and 4.5% in London.

The report points out that sales, rather than house prices, are often seen as the ultimate measure of market strength and transactions have fallen only 6.9% since the Brexit vote to 1.145 million, demonstrating the resilience of the UK housing market.

The firm expects this figure to decrease by just 1% over the next five years but a continued rebalancing of the composition of the market is expected, with mortgaged buy to let investor purchases falling by 23%. Savills says that this will add to upwards pressure on rents, particularly in London, as investors look to lower value, higher yielding markets.

The analysis also reveals that London house prices have risen by 72% over the past 10 years, well ahead of any other region. The average home buyer with a mortgage now pays just under £429,000 and has a household income of almost £76,000, some 58% higher than the UK average. But even with borrowing at over four times that income, these households still need a deposit of £123,000.

However, the prime London markets are less dependent on mortgage borrowing and will outperform the mainstream and the capital is expected to remain an attractive place to live, work and own residential assets, supporting a 12.4% price growth in prime central London by the end of 2023.

The Midlands, the North of England, Yorkshire and Humberside, Scotland and Wales all have the capacity for borrowing to increase relative to incomes, even allowing for higher interest rates, and this will support price growth ranging from 17.6% to 21.6% across these regions.

Key regional economies, most notably the metros of Manchester and Birmingham, have the capacity to outperform their regions attracting both local and investor buyers, the report says while Wales is expected to perform in line with the Midlands as it has done in previous cycles, but it is a hugely diverse market. There may be increased housing demand crossing over from Bristol once the Severn bridge tolls are abolished.

Scotland, which has only recently returned to pre credit crunch peak, is performing strongly, particularly Edinburgh and Glasgow, which have seen prices rise 8.9% and 7% over the past year, respectively.

Rental growth is expected to track house price growth, averaging 13.7% over the next five years and the report says that tightening access to mortgage finance and limited social housing supply is driving demand for privately rented homes at all price points. This is particularly true in London, where rents will rise by 15.9%.

‘Until the market sees a significant injection of build to rent stock, rental demand will outstrip supply and rents will rise. Investor buyers requiring borrowing are expected to focus on higher yielding markets and this will put further upwards pressure on rents in some of the most expensive rental locations,’ Cook added.

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International Commercial InvestmentUK house prices set to rise by almost 15% in 5 years

Number of new UK homes at ‘highest levels for over a decade

by International Commercial Investment on November 2, 2018

Source: The Guardian

New home registrations in Britain have reached their highest level in more than a decade, boosted by a number of large developments in London, according to an industry body.

But the National House Building Council (NHBC), which released the figures, also warned of caution in the industry until the economic impact of Brexit becomes clearer.

The NHBC said 43,578 new homes were registered between July and September, up 15% from the same period a year earlier. It is the highest total since the third quarter of 2007, when 49,520 new homes were registered just before the start of the global financial crisis.

The figures are taken from builders responsible for around 80% of homes constructed in the UK. Builders are required to register houses with the NHBC, the main warranty and insurance provider in the UK, before starting work.

The private sector accounted for 33,520 new homes, up 16%, with another 10,058 homes in the affordable sector, up 12%.

New home registrations in London increased 141% to 6,007 from 2,492 a year earlier, an unusually low number following the Grenfell Tower fire in June 2017.

Housing associations are involved in a number of big London developments, including Swan Housing Association’s £300m project in Poplar with 1,500 planned homes, half of which are slated as affordable.

Developer Countryside Properties and London & Quadrant (L&Q) Housing Trust have teamed up to redevelop the former Ford factory site in Dagenham with up to 3,000 homes, half of them affordable. Housing associations also play a big part in the north-west of England, where L&Q has gone into partnership with Trafford Housing Trust in Manchester.

There was a further boost from build-to-rent projects, including Delancey’s Elephant & Castle revamp with 374 rental flats.

Seven of the UK’s 12 regions recorded growth, led by London, Yorkshire and the Humber up 39%, the south-west up 34% and Scotland up 20%.

Housebuilding has recovered since the lows during the financial crisis to more than 217,000 homes in England in the 2016-17 financial year, according to official figures.

The government’s target is 300,000 new homes a year by 2022, but the majority of housebuilders think it will be missed by at least 50,000, a Knight Frank survey has shown.

Steve Wood, NHBC’s chief executive, said: “The upturn in registrations over recent months is good news for the industry and shows that there remains a strong demand for high quality new homes in many parts of the UK.”

But he added: “The industry remains cautious in the short-run until the economic impact of Brexit is clearer.”

The property firm Jones Lang LaSalle predicted a swift recovery in house prices from the second half of next year.

Despite the deadlocked negotiations between London and Brussels, JLL believes there is a 90% chance of a Brexit deal being reached, and that prices will rise quickly thereafter, starting in London and southern England, where some areas have recorded sharp declines in recent months.

The firm predicts 11.4% growth in house prices across the UK over the next five years. In prime central London areas, prices are forecast to grow 15% between 2019 and 2023.

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International Commercial InvestmentNumber of new UK homes at ‘highest levels for over a decade