UK Commercial & Residential Property Markets Review: June 2018 | 1 UK Commercial & Residential Property Markets Review: June 2018 | 2 CONTENTS Economic overview page 3 Residential property - National sales page 5 - London sales page 8 - London new homes page 10 - National lettings page 11 - London lettings page 12 Commercial property - London office market page 14 - Retail market page 14 Investment market - Residential page 15 - Commercial page 16 Contact page 17 UK Commercial & Residential Property Markets Review: June 2018 | 3 ECONOMIC OVERVIEW GDP Growth The weakest household spending for three years and falling levels of business investment dragged the economy to its worst quarterly performance for five years according to official statistics, with revised estimates showing GDP rose by just 0.1% in Q1. Nevertheless, there have been signs that the economy may have recovered somewhat in the second quarter. Growth in UK services hit a three-month high in May, although this was against the backdrop of strong cost pressures. The IHS Markit/CIPS UK Services Purchasing Managers’ Index climbed to 54 in May, up on 52.8 in April. Competitive pricing, greater business investment and new product launches led to improved sales volumes, but the increase in new work was one of the weakest seen since summer 2016. Meanwhile, Brexit rumbles on with multiple outcome scenarios still a possibility. Theresa May has welcomed the passing of the Brexit bill through Parliament as "a crucial step" in delivering a "smooth and orderly Brexit". Peers accepted the amendment to the EU (Withdrawal) Bill sent to them from the House of Commons, meaning the bill now goes for Royal Assent to become law. In spite of the less bullish atmosphere, the Treasury’s forecasting panel has maintained this month’s GDP growth forecasts for 2018 and 2019 at, respectively, 1.4% and 1.5%. Figure 1: UK GDP growth outlook Source: HM Treasury Forecast Panel 3.0% 2.5% 2.0% 1.8% 1.8% 1.7% 1.7% 1.5% 1.5% 1.4% 1.0% 0.5% 0.0% 2017 2018 2019 2020 2021 2022 Inflation & interest rates Annual consumer price inflation was unchanged at 2.4% in May, although RPI inflation nudged downwards, from 3.4% to 3.3%. The Treasury forecasting panel’s 2018 inflation (CPI) forecast was held at 2.3% for the second month in succession, and the RPI forecast was held at 3.2%. Further reductions in both inflation measures are forecast for 2019. UK Commercial & Residential Property Markets Review: June 2018 | 4 The Bank of England’s Monetary Policy Committee held Bank Rate at 0.5% at its May meeting. It is still widely expected that there will be at least one further increase this year, especially if inflation remains above target and real wages’ growth stays in positive territory. UK 3 month Libor rates have nudged upwards this month and as at 15th June stood at 0.631%, while 5 year swap rates have dropped slightly to 1.323%. Figure 2: Inflation (CPI) & Bank Rate forecasts Source: HM Treasury Forecast Panel & OBR 3.50% 3.0% 3.00% 2.3% 2.50% 2.1% 2.0% 2.1% 2.00% 2.1% 2.05% 1.50% 1.83% 1.50% 1.00% 1.25% 0.50% 0.75% 0.50% 0.00% 2017 2018 2019 2020 2021 2022 Bank Rate (q4) CPI Employment and earnings growth The latest employment rate is 75.6%, higher than for a year earlier (74.8%) and the joint highest since comparable records began in 1971. The latest unemployment rate stands at 4.2%, down from 4.6% for a year earlier and the joint lowest since 1975. Latest estimates show that average weekly earnings for employees in Great Britain in nominal terms increased by 2.8% excluding bonuses, and by 2.5% including bonuses, compared with a year earlier. Inflation continues to take its toll, however, and average weekly earnings for employees in Great Britain in real terms increased by just 0.4% excluding bonuses, and by 0.1% including bonuses, compared with a year earlier. UK Commercial & Residential Property Markets Review: June 2018 | 5 RESIDENTIAL PROPERTY National sales market The perennial regional divide has taken a new twist this year in terms of availability and price growth. Data from Right move show that available stock levels in the north are considerably lower than in the south and buyer demand is arguably stronger. Strong buyer activity in northern regions has reduced available stock levels by an average of 4.3% when compared to a year ago, restricting buyer choice and giving sellers upwards pricing power. In contrast the less active southern regions all have more available stock, up by an average of 17.5% compared to a year ago, and have become buyers’ markets with asking prices under downwards pressure. Figure 3: Change in available stock: May 2018 v May 2017 Source: Rightmove East of England South East London South West East Midlands West Midlands North East North West Yorks & Humber -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% Latest Land Registry data reveal that UK annual house price growth slowed to 3.9% in April, down from 4.3% in March, taking the average price to £226,906. Prices in England slowed at a similar rate – from 4.0% down to 3.7%, with the average price now standing at £243,639. Growth is now strongest in the South West (6.1%) and weakest in London (1.0%). According to Rightmove, national asking prices rose marginally in June (+0.4%) compared to May, and were 1.7% higher than in June 2017. Interestingly, the higher value properties recorded the biggest increases, averaging 1.1% on a monthly measure and 3.0% compared to June last year. However, asking prices in the current market are often just a starting point for negotiation. Data from the National Association of Estate Agents show that only one property in every eight sold in March succeeded in achieving its asking price - while no fewer than 86% sold for less, up from 74% in February. UK Commercial & Residential Property Markets Review: June 2018 | 6 Figure 4: Average annual house price growth: UK & England Source: Land Registry/ONS 6% 5% 4% 3% UK England Figure 5: Average regional house price & annual price growth (Apr 2018) Source: Land Registry/ONS £500,000 7.0% 6.1% 5.9% £450,000 6.0% £400,000 4.8% 4.5% £350,000 5.0% £300,000 3.5% 3.5% 4.0% £250,000 2.5% 2.4% £200,000 3.0% £150,000 2.0% 1.0% £100,000 1.0% £50,000 £0 0.0% Ave price 12 month growth The Bank of Mum & Dad (BoMaD) remains a major source of lending despite concern about the potential impact on parental finances going forward. A study conducted by Legal & General reveals that it will be the equivalent of a £5.7bn mortgage lender this year and is supporting more people than ever: 27% of all buyers will receive help from friends or family in 2018, up from 25% in 2017, purchasing almost 317,000 homes. However, parental generosity is not without its limits and the latest BoMad survey suggests that parental households are feeling squeezed. Parents are providing smaller sums, with the average contribution declining from £21,600 in 2017 to £18,000 in 2018. This means that although BoMaD- UK Commercial & Residential Property Markets Review: June 2018 | 7 supported transaction volumes are rising, overall forecast lending at £5.7bn is nonetheless a reduction from its height of £6.5bn last year. Mortgage lending for house purchase accelerated in May to rise by 12.3% compared to the previous month although it was 3.8% down on the May 2017 figure. The average loan value for house purchase rose by 3.2% compared to the previous month to reach £203,800. Re-mortgaging rose by 11.8% over the month and was a hefty 18.3% higher than in May last year. Re-mortgaging as a proportion of total mortgage lending has risen from 56.7% last May to 69.7% in May this year, a reflection of households taking advantage of low interest rates and uncertainty about when they will start to go up again. Figure 6: Mortgage lending by type (no. of loans, nsa) Source: UK Finance 60000 50000 40000 30000 20000 10000 0 House purchase Remortgage Despite persistent affordability issues and stock shortages in parts of the country, residential sales’ volumes in the first five months of 2018 are only slightly down on the corresponding period last year: 2.9% lower in England and 3.5% down for the UK as a whole. According to HMRC, non-seasonally adjusted sales in May were 12.1% up on April and only 1% down on May 2017. The corresponding numbers for the UK are 12.4% and -0.5%. UK Commercial & Residential Property Markets Review: June 2018 | 8 Figure 7: UK & England residential property transactions Source: HMRC 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 UK England London sales market Rightmove data show that London currently has 16.4% more available stock than at the same point last year which is helping to keep asking price growth subdued. Land Registry reports that annual achieved price growth in London stood at 1.0% in April. Revised data also reveal that annual price growth was only negative for one month – March – and not as previously reported for two consecutive months. Even then prices only dropped by 0.5%.