Tag Archives: european
Commercial property more likely to be affected by Brexit than residential
Volatile markets since the UK voted to leave the European Union are clouding prospects for the nation’s real estate sector with commercial sectors most likely to be affected, according to a new analysis. Commercial real estate companies, especially those most exposed to London's financial districts, could be most affected by falling valuations and rents, followed by home builders in the higher end segment, says the report from S&P Global Ratings. ‘We anticipate the drop in valuation will be on average less dramatic for residential real estate assets than for the commercial sector, although it will vary between segments and geographies, the report says. ‘High end and luxury apartments in central London were already experiencing some negative trends in the past few months. We would expect this situation to continue given that this segment relies more heavily on foreign investors, which we expect may be even more hesitant buyers now, despite the fall in sterling,’ it points out. ‘On the other hand, we believe that value fluctuation in the mid-range and affordable segments will likely be more limited, especially given the structural undersupply of housing in the UK and the expected lower for longer interest rate environment. Any long term impact on migration flux as a result of a Brexit may nonetheless have some negative consequences on households' growth and ultimately on residential real estate overall. However, we view this risk as more remote for now,’ it explains. Home builders, the report says, could be more heavily affected by Brexit fallout than residential real estate investment companies. This is especially if demand for new homes starts falling should purchase decisions be delayed in the context of uncertainties created by the Brexit vote. ‘We understand that home builders are monitoring closely their weekly sales rates, footfall to showrooms, and mortgage approval rates, as key indicators of operating performance. These indicators seem to have remained relatively healthy so far, in particular in the affordable segment, and mortgage availability continues to be robust as opposed to the previous downturn in 2008/2009, the report says. ‘However, some deterioration cannot be ruled out, especially because the sector is strongly correlated to GDP growth, unemployment rates, and consumer confidence, which are all expected to be negatively affected in the coming months and years,’ it adds. The report also points out that home builders already observed some declines in sales rates in the second quarter of 2016, although this seems to have been related more to the change in stamp duty than concerns over Brexit, adding that a potential decline in house prices may also stretch margins for home builders. ‘While a drop in valuation of UK commercial assets of 10% to 20% or more would be detrimental to property companies, the robust fundamentals of the business model of real estate investment companies should limit any significant turbulence in operating performance, in our view, at least in the short to medium term,’ it points out. The climate could result in discounts being offered… Continue reading
Rents in central London’s prime market down but activity is stronger
Rental values in the prime central London lettings market fell by 3.6% in the year to July 2016 but activity is stronger than last summer, the latest index shows. Values were down due to higher stock levels and a degree of uncertainty surrounding the European Union referendum result, according to the report from international real estate firm Knight Frank. Where the rental value is regarded by prospective tenants as being right properties are being taken up and the number of tenancies agreed in the three months to June rose 3% compared to 2015 and viewings increased 15.8%, the data from Knight Frank also shows While overall the number of new prospective tenants fell 6.8% over the same period, the number of tenancies started via Knight Frank’s corporate relocation service increased 72% in the same period but prime gross rental yields were flat at 3.1%. According to Tom Bill, head of London residential research at Knight Frank, there are parallels between the lettings and sales markets because the Brexit vote has reinforced the existent pricing trends rather alter market fundamentals. ‘Demand has been relatively flat since the start of the year due to uncertainty surrounding the state of the global economy, particularly in the financial services sector, which contributed towards a slowdown in rental value growth from its last peak of 4.2% in May 2015,’ he said. ‘This trend has been compounded by higher levels of supply as stock has moved across from the sales market, with more vendors becoming landlords due to weaker conditions in the prime sales markets,’ he pointed out. ‘In the three months to the end of June this year, the number of new rental properties placed on the market rose by 49% compared to the same period last year. As a result, landlords are reducing asking rents to prevent void periods and tenants are becoming more selective,’ he explained. Indeed, properties where the asking rent is perceived as too high are struggling to get viewings and Bill believes that the referendum result has simply reinforced this dynamic and landlords are increasingly taking a pragmatic approach to asking rents against the background of wider Brexit uncertainty and rising stock levels. He also pointed out that despite the three month decline in the number of new prospective tenants registering, the expectation is that rental volumes will continue to rise over the summer and into the autumn. ‘The uncertainty ahead of the Brexit vote could be an explanatory factor for weaker registrations, although early signs are positive with no significant announcements that companies are pulling back from relocating staff to London following the referendum,’ he added. Knight Frank also found that relocation budgets in many cases have risen due to the effects of a weaker Sterling, which means tenants are looking in higher-value areas and at higher value properties compared to last year. The number of new prospective tenants registering with a budget of £1,500 plus per week increased 11% in the three… Continue reading
UK only key country in EU likely to see property prices fall in next 18 months
House prices will rise in nearly all European markets this year on the back of historically low lending rates but in the UK prices will fall over the next 18 months due to the decision to leave the European Union, says a new analysis report. The German housing market is set to see the strongest growth due to high demand and tight supply of homes for sale but Italy is likely to see prices remain static due to a poor economic outlook, according to the report from S&P Global Ratings. ‘While uncertainties caused by the UK's June 23 referendum decision to leave the EU could dent eurozone growth and, by extension, the housing market recovery over the next few years, we don't expect that it will derail it,’ said Jean-Michel Six, chief economist for Europe, the Middle East, and Africa at S&P Global Ratings. The report forecasts that eurozone real GDP will expand 1.7% this year, and it expects that the European Central Bank's (ECB's) accommodative monetary stance, leading to historically low sovereign bond yields and mortgage interest rates, will spur improvements in Europe's housing markets. The UK is the only housing market for which house price declines are forecast as a result of the Brexit vote, although it points out that strong market gains in the first half of this year should keep full year house price rises at 5%, with the market only likely declining in 2017 by 2%. Although Ireland's economy has tight economic ties with the UK its housing market will continue its robust recovery, with prices growing by 6% this year, aided by the ongoing improvement in the labour market and a housing supply shortage. The forecast says that the Netherlands, also exposed to the UK economy, should also continue to see nominal prices rise by 5% this year on the back of economic improvements and favourable policy measures. Even the French housing market, which has been falling in recent years, is showing some resilience and looks set to grow by 2% in 2016 and in 2017 against a backdrop of low lending rates and modest economic growth. The strongest residential housing market gains this year will be in Germany, where robust economic fundamentals, a shortage of housing that is being further squeezed by the surge of migrants, and historically low lending rates should lead to prices inflating by 7% on last year. Spain and Belgium will each see house price rises of 4% this year. In Spain, economic growth, declining unemployment, and interest from foreign buyers should underpin a continued recovery of house prices the report says. In Belgium, forthcoming changes to fiscal rules and very favourable loan rates are still underpinning demand this year. While economic recovery and price incentives are also continuing to lift house prices in Portugal, a large stock of nonperforming domestic loans is… Continue reading
