UK Commercial & Residential Property Markets Review: November 2018 | 1 UK Commercial & Residential Property Markets Review: November 2018 | 2 CONTENTS Economic overview page 3 Residential property - National sales page 4 - London sales page 7 - London new homes page 9 - National lettings page 10 - London lettings page 11 Commercial property - London office market page 12 - Retail market page 13 Investment market - Residential page 13 - Commercial page 14 Contact page 15 UK Commercial & Residential Property Markets Review: November 2018 | 3 ECONOMIC OVERVIEW GDP Growth As expected, recent data confirmed that GDP growth accelerated in Q3 and, at 0.6%, quarter-on- quarter growth was the strongest since 2016. In a surprisingly upbeat Budget, the Chancellor announced that “austerity is coming to an end”, and promised the first outright fiscal loosening for a decade in 2019/20. This should provide a welcome support to GDP growth, particularly next year - although the large fall in the PMIs in October suggests that the economy slowed sharply at the start of Q4. The Treasury’s panel of independent forecasters held its November forecast GDP growth rate for 2018 at 1.3% and pointed to GDP growth accelerating to 1.5% in 2019. The underlying economic platform therefore appears relatively benign although the elephant in the room remains Brexit, both from an economic and a political perspective. The current deal (withdrawal agreement and political declaration) has been signed off by the other 27 EU countries however, Theresa May needs to persuade MPs in her own Parliament to back it. A vote will now take place on 11th December. If the deal is rejected this could potentially trigger a No Confidence vote in Parliament with another General Election increasingly a likely result. Even if it gets through Parliament, the deal also needs to be approved by the European Parliament - which will vote early next year although this is expected to be a rubber stamp job. Figure 1: UK GDP growth outlook Source: HM Treasury Forecast Panel 3.0% 2.5% 2.0% 1.8% 1.7% 1.7% 1.6% 1.5% 1.5% 1.3% 1.0% 0.5% 0.0% 2017 2018 2019 2020 2021 2022 Inflation & interest rates CPI inflation was unchanged at 2.4% in October but is comfortably below the 3.0% recorded in October 2017. RPI inflation was also unchanged at 3.3% but was lower than in October 2017 (4.0%). The Bank of England’s Monetary Policy Committee held Bank Rate at 0.75% at its November meeting, but it is likely to creep up next year although the MPC has stated that “any future UK Commercial & Residential Property Markets Review: November 2018 | 4 increases in Bank Rate are likely to be at a gradual pace and to a limited extent.” UK 3 month Libor rates have drifted upwards this month and as at 24th November stood at 0.89%, while 5 year swap rates have dropped to 1.29%. Figure 2: Inflation & Bank Rate forecasts Source: HM Treasury Forecast Panel & ONS 4.00% 3.6% 3.50% 3.3% 3.3% 3.3% 3.0% 3.0% 3.1% 3.00% 2.4% 2.50% 2.0% 2.0% 2.0% 2.1% 2.00% 1.50% 1.92% 1.69% 1.00% 1.37% 1.12% 0.50% 0.75% 0.50% 0.00% 2017 2018 2019 2020 2021 2022 Bank Rate (q4) CPI RPI Employment and earnings growth The latest rolling quarter data from the Office for national Statistics (ONS) show that the employment rate, at 75.5%, is little changed compared with April to June 2018 but is higher than for a year earlier (75.0%). The unemployment rate, at 4.1%, is slightly higher than for April to June 2018 but lower than for a year earlier (4.3%). Headline annual pay growth excluding bonuses has risen to its fastest pace since 2008. Latest estimates show that average weekly earnings for employees in Great Britain in nominal terms have increased by 3.2% excluding bonuses, and by 3.0% including bonuses, compared with a year earlier. In real terms earnings increased by just 0.9% excluding bonuses, and by 0.8% including bonuses, compared with a year earlier. RESIDENTIAL PROPERTY National sales market Suggestions that house prices are about to crash still appear unfounded. Of course, an economic crisis could trigger a collapse but for now employment levels remain high, average earnings growth is back in real growth territory and there is a widespread shortage of housing stock for sale. In the meantime, the Land Registry reports that national average house price growth accelerated in the 12 months to September – to 3.5% in the UK and to 2.8% in England. UK Commercial & Residential Property Markets Review: November 2018 | 5 Figure 3: Average annual house price growth: UK & England Source: Land Registry/ONS 6% 5% 4% 3% 2% UK England Figure 4: Average regional house price & annual price growth (September 2018) Source: Land Registry/ONS £500,000 7.00% 6.10% 6.00% £450,000 6.00% £400,000 4.30% 5.00% £350,000 3.50% £300,000 3.30% 4.00% 2.60% £250,000 3.00% 2.00% 1.70% £200,000 2.00% £150,000 1.00% £100,000 -0.30% £50,000 0.00% £0 -1.00% Ave price 12 month growth The Midlands continues to exhibit the strongest regional growth in house prices with the West Midlands recording 12 month growth of 6.1% and the East Midlands 6.0% in September. London remains the only region where prices fell over the period and even then the drop was minimal (-0.3%). UK Commercial & Residential Property Markets Review: November 2018 | 6 Figure 5: Mortgage approvals Source: UK Finance 50000 45000 40000 35000 30000 25000 20000 15000 10000 5000 0 House purchase Remortgage Mortgage lending volume for house purchase fell by 12.3% in September compared to the previous month and was 10.1% lower than in September 2017. Re-mortgaging (by volume) also fell back – by 14.7% compared to August and by 7.4% compared to a year ago. Figure 6: UK & England residential property transactions Source: HMRC 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 UK England After a sharp drop in September, residential sales rebounded in October. In England, non-seasonally adjusted transaction numbers rose by 16% compared to the previous month and by 5.5% compared to October 2017. UK wide sales were up 14% month-on-month and were 4% higher than last October. UK Commercial & Residential Property Markets Review: November 2018 | 7 Sales have held up remarkably well in spite of stock shortages, affordability issues and Brexit anxiety. Across the UK, transaction numbers in the first 10 months of the year are only 2.6% down on the corresponding period in 2017 and only 2.5% lower in England. That sales have held up as well as they have is in large part due to a favourable mortgage market, the Bank of Mum & Dad and the Government’s Help-to-Buy initiative. However, without some kind of Government intervention - such as the introduction of the 3% surcharge on second properties which drove sales to their highest recorded quarterly level between January and March 2016 as buyers raced to complete before the end-March deadline (but which subsequently slowed the market) – or a substantial fall in asking prices it is hard to see sales volumes picking up in 2019. London sales market Annualised data from Land Registry for the first nine months point to a 13% reduction in sales in 2018 compared to 2017. This is in part due to low levels of available stock while affordability remains an issue. An average price of £482,000, according to Land Registry, means that average households find it even harder to buy in the capital. Nonetheless, data from UK Finance shows that more first time buyers are getting onto the housing ladder in London, reaching their highest level in three years with new mortgage numbers in Q3 2.6% higher than in the same period last year. The larger proportion of high value properties means that the capital has suffered more than the rest of the country in the wake of tax increases, while Brexit has also had a greater impact due to the more international make-up of the population. It is encouraging, however, that there has been a noticeable increase in buyer interest in the latter half of the year, with registrations and viewings both up on last year. The Autumn Budget proved disappointing for the housing market, despite lobbying from the industry to ease back on some of the punitive tax measures of the past few years. Help to Buy was extended for another two years after its scheduled end in March 2021, however the government “does not intend” to continue with the scheme beyond March 2023. More detail emerged on the Government’s plans to hike stamp duty for foreign buyers and a consultation will be published in January on a proposed 1% surcharge. In the year to September, the Land Registry reports that sold prices in Greater London were broadly flat (-0.3%) and the average price in September was 1.4% higher than the average price in January this year. Although prices have fallen sharply in some boroughs this largely reflects a local oversupply of high-end new build homes. Suggestions that the whole market is crashing are therefore some way off the mark. Nonetheless, prices are unlikely to see much growth in 2019.