Bull and Bear meet up to discuss the UK housing market, which is experiencing price reductions, sales falling through and rocketing mortgage rates.
Warnings of further downward pressure on house prices have been all over the media this week. Some independent analysts and agents, including the likes of Knight Frank, are predicting that average house prices will fall by at least 10% over the next two years. This, however, would only push house prices back to levels that were recorded in May 2021.
The average two-year fixed mortgage rate is currently 6.16%, the first time it has topped 6% in fourteen years. The average five-year fixed year rates stand at 6.07%. For homeowners currently locked into some of the lowest mortgage rates but with their deal ending soon, the future looks pretty bleak.
The shortage in housing supply, strong labour market and the recently announced changes to stamp duty will, hopefully, help reduce the overall impact.
Enjoy your Sunday.
Where the heck are we?
After a decade of Bull calling the shots, it is now time for Bear to have his turn in the limelight.
The turmoil of the financial markets is taking a heavy toll on the property market.
Higher interest rates and gilts yields are heavily impacting on both property companies and the institutions alike.
No-one will be unscathed so long as the Bank of England and the Chancellor of the Exchequer are at odds with each other. Something (or someone) has to give.
A fall in capital values is now inevitable. The only question is by how much. Predictions range from 10% to 20%.
Enjoy your Sunday!
The Truss Effect
In the aftermath of Friday's "not-so-mini" budget announcement, Bull and Bear debate the new PM's economic ideology.
They pick through some of the detail of the Chancellor's "Growth Plan" and assess the market's immediate reaction.
They conclude that this huge fiscal stimulus will likely provide a shot in the arm to a faltering economy, but that this radical shift is not without risks in the longer-term.
Enjoy your Sunday.
Homeless Students
After an historic week for the country, Bull and Bear meet up to discuss the ongoing challenges students are facing and they debate the state of the Purpose Built Student Accommodation (SBSA) investment market.
Thousands of students who are meant to be starting courses imminently are being left stranded without accommodation.
According to UCAS, nearly 426,000 students held university offers on 18 August 2022, the second highest on record.
The private student accommodation rental market has shrunk significantly in recent times, not helped by the increasing legislation for Houses of Multiple Occupation (HMOs).
Sentiment in the sector has been buoyed by its resilience throughout the COVID pandemic and the current strong investor interest in the sector is expected to be maintained.
Thankfulness and Factfulness
Bull and Bear unite in expressing their sadness and condolences at the death of HM The Queen and express their gratitude for her dedication and steadfastness, not least as the Patron of the RICS.
Bull has been infatuated by the research findings of (the late) Dr Hans Rosling in Factfulness from which he has concluded that we are overly influenced by the media’s persistent barrage of bad news.
Despite all the current negative prophesies on the economic, financial and geo-political fronts, Bull sees no reason to be deflected from his indomitable upside perspective on life.
Bear is unconvinced. Yet even he accepts that the current softening of property yields is almost certainly not a sign of an impending apocalypse.
Green Premiums
On the back of a study by CBRE entitled 'The Value of Green Building Features', Bull and Bear discuss the evidence and its implications.
They discuss whether green premiums can actually be quantified and whether the risk of inaction by investors could ultimately leave buildings obsolete.
The conclude that, at the very least, investors need to implement sustainability measures to protect the value of their assets.
Enjoy your Sunday.
Summer Lull?
After returning from their summer holidays, Bull and Bear meet up to review the latest UK property news.
According to Savills, five sectors reported outward yield shifts of 25 basis points in July, up on the three in June, bringing their average prime yield to 4.88%.
The preliminary July monthly investment volumes figure of £2bn is the weakest since August 2020 and down from a monthly average of £5.4bn during the first six months of 2022.
Rental levels for best-in-class office space have continued to rise over the summer.
According to Penfold, the average price of a London pint could climb to a staggering £13.98 by 2025. Really?
Demographic Challenges
As the world’s population is about to pass eight billion, Bull and Bear consider the ramifications of the UN’s latest demographic predictions.
The UN reckon that on 15 November 2022 the global population will pass eight billion. If we all held hands, we would wrap around the Earth three hundred times!
The global population is expected to reach 9.7 billion by 2050. More than half the projected increase will be concentrated in just eight countries.
The additional 10 million people who are going to be living in the UK over the next twenty-eight years is the equivalent to another London and Birmingham combined.
The share of the global population aged 65 years plus is expected to rise from 10% to 16% by 2050. In the UK, it is even higher.
The Climate Challenge
In the aftermath of the heatwave, Bull & Bear examine what the property industry can do to reduce carbon emissions and play their part in mitigating the impacts of climate change.
They discuss measures to reduce both operational carbon emissions and embodied carbon, as the industry strives to achieve the much-feted "net zero" targets set by the Government.
For once, they seem to be largely in agreement!
London Offices - Overheating?
Battling against the ongoing heatwave, Bull and Bear meet up to discuss the London office market and explore whether it should still be on investors’ buy-lists.
According to Remit Consulting, office occupancy in Central London was only 29.3% in the middle of May.
Both Savills and CBRE have recently increased their prime City office yield from 3.75% to 4.00%. Prime West End Office Yields remain at 3.25%.
Asian Pacific investors have been the most active on the buy-side this year for City offices, whilst over in the West End, North American investors have been the most active buyers by volume.
Changing Sentiment
All the recent political and economic upheaval has unnerved investors and encouraged them to disappear off on early, and extended, summer holidays.
Whilst holding steady for now, asset valuations are under scrutiny, not least as rising borrowing costs are eroding on net income.
As one of the key drivers of real estate activity, Private Equity firms will be particularly susceptible to less favourable debt markets. Yet, there is a record amount of PE ‘dry-powder’ seeking a home.
Unsurprisingly, Bull recommends that investors should hold their nerve and wait for decent buying opportunities. Bear is more faint-hearted.
Bristol - A Whistle Stop Tour
After a day exploring Bristol as part of Hartnell Taylor Cook's annual Commercial Property review, Bull gives his insights into what this "Key City" for investment has to offer.
Bull & Bear provide a quick health check of the industrial, office and retail sectors, and discover that Bristol is (largely) in rude health.
Leisure - Play Time?
After a week stuck at home due to train strikes, Bull and Bear meet up in their usual pub to discuss the hospitality sector and explore whether it should be on investors’ buy-lists.
The hospitality sector represents 10% of UK employment, 6% of businesses and 5% of UK GDP.
According to UKHospitality, more than 10,000 pubs and restaurants are at risk of closure. Lots of independent operators are already handing in their keys and walking away.
According to Knight Frank/MSCI, between 1981 and 2020, Leisure Parks considerably out-performed virtually every other mainstream property asset class, delivering an annual average total return of +11.2% (All Property +8.6%, All Retail +8.0%).
The current spread in yields between leisure and the other main sectors is pretty eye watering.
World Cities | Happiness
Bear is not happy. He has been overcome by the recent deluge of bad economic, financial and political news.
Bull tries to cheer him up with good news on three fronts - world cities, the happiest places and the most environmentally friendly countries.
London tops St Bride’s Annual World Cities chart again. This is the tenth time in a row.
But bad behaviour could be costly to London’s international reputation.