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Brexit set to have positive and negative effects for UK commercial property markets
Confidence in the UK’s commercial real estate markets will unquestionably fall due to the Brexit uncertainty with a ripple effect set to spread beyond London, according to a new analysis. It is likely that decisions will be pushed back in the period of heightened economic and political uncertainty that no one can define or quantify and it will most likely take several years for people to fully understand the implications of the decision to leave the European Union, says the report from Fidelity International. But there are likely to be positive as well as negative effects due to the referendum decision. ‘The question is whether resultant pricing volatility is a fair reflection of inherent risks or a potential mispricing opportunity,’ said Adrian Benedict, the firm’s real estate director. He pointed out that before the referendum, transaction volumes were already down 50% in the year to date compared with the same period in 2015. ‘We anticipate volumes to remain modest for the rest of 2016 as investors assess the implications,’ he added. ‘As we saw in the aftermath of the 2008 financial crisis, we can expect real estate investors to seek refuge in the relative safe harbour markets like London West End or long leased assets. However, unlike then, values are already 10% to 20% above long term levels,’ Benedict explained. He believes that many investors will be turning their attention to the occupier market, in particular evaluating the impact on financial and business services companies; anyone with those type of tenants are going to be more circumspect but the impact won't just be confined to London. ‘We can expect to see a ripple effect across the country. Bournemouth for example has a high proportion of people employed by financial service companies and it would be naïve of us to think the impact will be contained to the capital,’ Benedict said. ‘So long as occupiers remain cash generative, we’re unlikely to face a material pricing correction arising from weak fundamentals. Supply of new space remains very constrained and vacancy rates in the key cities across the UK have largely recovered,’ he added. He also pointed out that having short leased assets doesn’t necessarily mean occupiers will move out. ‘Fidelity’s experience suggests less than 25% of occupiers chose to exercise their option to terminate leases or move at expiry. Rather than selling or buying real estate ‘markets’ a greater emphasis will need to be placed on underwriting the occupiers and the certainty of their cash flows,’ he said. ‘As with most clouds, there is a silver lining. Over the last 12 months international buyers accounted for 40 percent of commercial property deals in the UK, a near doubling within 10 years. The relative attractiveness of the UK market is explained by a strong economy but also a relatively weak currency. In US$ terms, the UK real estate market is now back to pre-2004 pricing levels. The question is whether international investors will view this as… Continue reading
Planning permission for new homes in England up 4% in first quarter
The number of planning permissions granted for new homes in the first quarter of 2016 in England remained high, according to the latest housing pipeline report. Permissions for 66,102 homes were granted in the first three months of the year, up 4% on the previous year, the data from the report from the House Builders Federation and Glenigan shows. This means that the moving annual total has now recovered to just short of the pre-crash peak in the 12 months to March 2008, and is ahead of the levels in 2006 and 2007, suggesting house building can continue increasing to meet the very high level of demand for new homes. Whilst many of these permissions still have some way to go before builders can start building them, the figures are a strong indicator of future supply. Permissions have risen steadily every year since 2009, with actual housing supply also increasing markedly over the past two years as more of the permissions have progressed to the point where builders can begin building. Indeed, the report shows that the last 12 months have seen a 66% increase in permissions granted on the nadir of the recession in 2009. Numbers are now only 0.3% below where they were at the highest point in early 2008. Demand for new homes remains extremely strong. The HBF estimates there is a shortfall of well over one million homes in England. Almost a third of young people, some 3.35 million, are living at home with their parents and 1.24 million people are on housing waiting lists. The Help to Buy equity loan scheme continues to drive demand for new homes and interest rates remain historically low at the same time over 180,000 new homes were added to the housing stock in 2014/2015, up 22% on the previous year, as house builders increased output in response to the rise in demand for new homes. ‘Planning permissions are a strong indicator of future levels of supply. The past two years have seen huge increases in building levels, with housing supply in England surpassing 180,000 homes per year in 2014/2015, up 22% on the previous year,’ said Peter Andrew, deputy chairman of the HBF. But he warned that the country still faces an acute housing shortage in this country. ‘Millions of young people remain at home with their parents and we estimate we are over a million homes short of what the country needs,’ he explained. Help to Buy equity loan is driving demand and helping thousands of first time buyers a week purchase a new build home and with interest rates remaining at historically low levels, demand remains strong,’ he pointed out. Allan Wilén, economics director and head of Business Market Intelligence at Glenigan, pointed out that the level of planning approvals remains strong, driven by an increase in the number of private housing units approved. ‘The firm development pipeline demonstrates that house builders are well placed to meet any strengthening in demand from… Continue reading
Warning over implications of changes in Renters’ Rights Bill in UK
The Association of Independent Inventory Clerks (AIIC) is urging the Government to re-evaluate its Renters' Rights Bill, which includes measures to stop letting agents charging tenants for an inventory check. The industry body says that these costs will simply be passed to landlords who will then incorporate them into tenants' rent. Earlier this month, the Renters' Rights Bill, which also includes measures to ban agents charging tenants registration fees, admin fees, reference check fees, renewal fees and exit fees, was given an unopposed second reading in the House of Lords. The Private Members' Bill was set up by Baroness Grender and has received strong support from Labour and the Liberal Democrats and it is thought the Bill has a strong chance of success as it now runs alongside a petition against agent fees charged to tenants, which has been gaining support since March and has now received well in excess of 250,000 signatures. ‘Here at the Association of Independent Inventory Clerks, we're strongly opposed to the banning of inventory fees charged to tenants by letting agents,’ said Patricia Barber, chair of the AIIC. ‘We envisage that if banned these charges would continue to be charged to tenants through the unspecified and unclear means of a higher rent,’ she explained, adding that not being able to charge tenants a fee may encourage some letting agents to bypass inventories altogether, something which could be extremely costly for all parties involved. ‘A detailed inventory helps landlords, agents and tenants to determine exactly how the property's condition has changed over the course of the tenancy, what can be deemed fair wear and tear and what needs to be replaced and therefore deducted from the tenant's deposit,’ Barber pointed out. ‘We totally understand that some fees charged to tenants are too high and complicated, but we believe that if fair and worthwhile fees like inventory checks are made clear to the tenant then there should be no problem in them being charged,’ she said. ‘The vast majority of letting agents are transparent in the fees they charge to tenants. Banning fees altogether and particularly inventory check fees is certainly not the answer and could contribute to more deposit disputes and property damage further down the line,’ she added. She also pointed out that the Renters' Rights Bill remains some way off becoming law as it still has to pass through the House of Commons before receiving Royal Assent. Its next stage is the Committee stage in the House of Lords, a date for which is yet to be announced. The AIIC is the UK's largest membership organisation for independent clerks and recently announced that it has joined the Property Redress Scheme. Continue reading
