Articles from the Silver Shemmings Ash Team on contractual matters, recent case law changes and items of interest in the construction and property world
February 10, 2020 | Silver Shemmings
I am writing this article on 31st January with less than twelve hours to go before the United Kingdom leaves the European Union, and I am thinking back to the world of property over the last year, and giving some thought as to what this year may hold in store for the property market.
Firstly, looking at some figures for the residential housing market, it is clear that property prices have risen at their fastest rate in more than a year over the month of January. Mortgage approvals for house purchases have risen to their highest level since August 2015. There are clear indicators of an increase in demand, and all of this adds up to evidence of a post-election housing boom. I think we will need to wait and see how the market goes over the next few months. The RICS monthly survey of estate agents has recorded a rise in reported home sales for the first time since May 2019, with an expectation from this survey that prices would rise across all parts of the UK. London and East Anglia were among the regions where demand has increased, and figures show that the volume of new enquiries are also increasing.
In the residential market, there has been some rapid growth from buyers from abroad, especially the Hong Kong market. The figures seem to show that the so called “Boris bounce” is having an effect at the high end of the market, especially as there had been talk of changes to stamp duty rates at that end of the market, and buyers seem to have been delaying exchanges to see what would happen with stamp duty rates. It is interesting to note that three of Britain’s leading house builders are all predicting larger profits, as the new-build housing market remained relatively buoyant last year with cheap mortgages helping this sector.
Looking at the commercial property market, it is clear from speaking to people within this sector, and reading various articles in the property press, that the commercial market was relieved that the three year period of uncertainty and indecision since the referendum result was drawing to a close. I have already noticed movement since the election, and indeed have had the busiest January that I can recall for many years.
The London office market is anticipating high demand, which in turn will push rents up even higher. At present, they are hovering around £70 to £80 per square foot but it is predicted that £90 per square foot could be achieved for the top end office market in the City of London. The fall in supply has not been matched by a full in demand, and there are predictions for record rents this year. Although there is building taking place in the City, the number of construction starts for new office buildings has fallen to the lowest level for five years, according to the Deloitte Real Estate Crane Survey. Now that many financial institutions have not, as predicted some years ago, moved to Europe, it is expected that finance and professional services, including Law firms will be looking for new space. It is now clear that businesses want to occupy space in the City, and will be prepared to pay these high rents. We shall see. WeWork appear to be retrenching, and if the economy improves as predicted, then users will want to take their own space rather than being in shared occupancies.
Looking at the regions, a couple of shopping centres were recently acquired by well- known names, and this type of acquisition could indicate that retail property values have now hit “rock bottom”.
Warehouses and distribution centres have undergone rises in value and rents, which contrasts with the average, more traditional, high streets shops. With more retailers failing, there will undoubtedly be even more vacant retail units, particularly with the ever-increasing rise of online shopping.
One of the changes that I think will need to happen is that local Councils will have to completely rethink their policy and strategy for high streets, and this will need to include looking at the high levels of business rates. And yet some retailers are prospering, and taking on more space, including some establishing customs warehouses in the UK in readiness for the transition period. There has been concerns about the falling value of shopping centres and retail parks, which has led to record amounts being withdrawn from property funds in the past year. Thus flexibility will be needed, particularly in the retail market, and it will be interesting to see how the IPSX, the new regulated exchange for commercial property, will work. This is designed to improve the liquidity of property by allowing building owners to liquidate or apportion their property values more quickly.
The Government have indicated their willingness and enthusiasm for the regions (partly of course as a result of the strong regional vote for the Tories in the general election) and many of the leading technology, legal, banking, and accountancy firms are setting up office outside London. Factory orders are starting to rise for the first time since last May. Channel 4 is moving to Leeds, and it is rumoured that Goldman Sachs are looking for new offices outside London to create a technology hub. Student accommodation and modular building are areas of on-going growth.
Now that the uncertainty over Brexit has been lifted, household living standards have improved, recruiters are reporting rising confidence about hiring and recent business activity surveys in the press have been more positive. There seems to be at least more optimism around than this time last year. There is a March Budget in view and it is believed that there will be a spending stimulus which in turn should help to boost the economy and property market.
Expectations for profitability and turnover are stronger, and it is hoped that there will be more inward investment into London, as many people still say that it is the best place in the world to both live and do business in. However, much needs to be done, particularly to improve regional towns. Brexit uncertainty may now be replaced by uncertainty as to how the country will exit following the transition period at the end of this year, and what trade deals are put in place, and whether this will encourage investment in property over a longer period.
Interest rates were put on hold in January by the Bank of England, and the Governor has said that “evidence of a pickup in growth is not yet wide spread”. Growth is not as strong as it was as hoped to be, and as the Governor said, “these are still early days”. Whilst there is undoubtedly more confidence there is still some uncertainty throughout the property market; hopefully this year will change that.
Author Michael Shapiro has over 35 years’ experience as a commercially focused Property Lawyer working in the City of London, with a broad range of Commercial Property experience working with property companies, high net worth individuals, offshore trusts and property investors.
Michael has been interviewed by The Times about partnerships with SME businesses and how lawyers and clients should build up their relationship with each other. He is often asked to liaise with other professionals on specific projects and provide more general commercial advice to his clients
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