www.kemsley.com
Jan 2015
Commentary
“ The property market overview”
Welcome to the January 2015 edition of our market commentary
This article provides an overview of economic factors affecting the property
market, together with our observations on the commercial property sector in
Essex and London over the last six months.
Seven consecutive quarters of growth signify a stable UK economy and with most commentators predicting
steady growth for the next two years at least, stability will remain a part of our economy for the foreseeable
future. Credit for secure lending remains in ample supply and developers have built land banks over the
last year large enough to permit them to build some considerable time into the future. Permitted
Development Rights appear to be affecting the office market in London, with rents and capital values rising
as supply reduces. We have transacted on a number of very large industrial units and whilst some lettings
have had to be heavily incentivised, the general trend is for incentives to reduce as the supply of quality
space dwindles. Our Professional Team continue to experience growth in work levels and has taken on
two new members of staff to help with expansion.
A N A LY S I S • A D V I C E • S O L U T I O N
Hawke House, Loughton
Economic Activity
The UK economy continues to perform
strongly, with the second and third quarters
of 2014 showing growth of 0.9% and 0.7%
respectively, linking seven consecutive
quarters of growth together and signalling
stability. The International Monetary Fund’s
(IMF) prediction for UK growth for 2014 was
revised upwards in October to 3.2%, putting
the UK at the top of the G7 Economies in
terms of growth, which include the US and
Germany. The Fund predicts UK growth for
2015 at 2.7%, but cautions that interest
rates may need to rise sharply to counter
inflation and/or rapid house price increases.
The UK economy remains largely selfdependant for growth support, with
business partners in the Eurozone unlikely to
trade heavily with us for the foreseeable
future, while their crisis remains far from
being resolved. In December, The British
Chamber of Commerce (BCC) downgraded
its forecasts for the UK Economy, and now
predicts growth of 3.0% for 2014, 2.6% for
2015 and 2.4% for 2016. At the time of
going to print, the Confederation of British
Industries (CBI) had yet to release their latest
figures but, in the mid part of last year,
reported they anticipated growth of 3.0% for
2014 and 2.7% for 2015. The Markit/CIPS
Services Purchasing Managers Index (PMI)
news release in December showed sector
growth strengthening, with the index sitting
at 58.6, up from 56.2 in October.
Companies reported rising volumes of work,
leading to an increase in time taken to
complete work outstanding. The
Markit/CIPS UK Manufacturing PMI survey
released in December showed a four month
high for November, at 53.5, comfortably
above the ‘no-change’ mark of 50, although
growth remains weaker than during the first
half of the year. Expansion in the
construction sector continues to ease, with
November showing the lowest rate of
growth for thirteen months. However,
according to the Markit CIPS UK
Construction PMI survey released in
December, construction firms are still highly
optimistic about the coming year, with
strong pipelines of residential building
projects and a rise in invitations to tender
across all UK regions. Developers seem to
be slower to complete land purchases,
advising us this is as a result of having to
negotiate harder against rising Section 106
costs and Local Authorities stalling decision
making with the Election due this year.
Permitted Development Rights
One in five of respondents to the Q3 RICS
Commercial Market Survey state that since
the introduction of Permitted Development
Rights (PD Rights), over 10% of office space
in London has been earmarked for
residential conversion, while less than one in
ten reported the same rate of conversion at
a national ex-London level. The survey
showed that circa 30% of offices under
consideration for conversion under PD
Rights were in tertiary areas, although we
would comment that what might be deemed
a tertiary area for office use, may be a high
value area for residential use.
Jobs
Availability of Credit
The first full year that Help to Buy mortgages
were available completed at the end of
September 2014. The scheme accounted for
a total of 30,269 property transactions; with
£4.45 billion having been loaned at an average
house price of £155,770, of which 79% were
purchased by first time buyers. Worryingly, the
loan to value ratio over the whole loan book
averages out at just over 94% and accounted
for only 3% of all residential mortgage
completions in the UK over the same period
(according to CML statistics).
Enterprise Way, Luton
Unemployment fell by 63,000 to 1.96 million
at the end of October according to the
Office for National Statistics (ONS); a
considerable reduction from the
recessionary peak of unemployment at the
end of 2009, when it reached almost 2.7
million. Monetary Policy and Inflation
In December, The Bank of England
announced a one year extension to the
Funding for Lending Scheme (FLS), which
means lenders will continue to have access
to cheap funding with the intention being for
it to support small and medium-sized
enterprises (SME’s) during 2015. As a result
of the additional money available to Banks
through the FLS, they have had far less
need for savers to deposit funds and this is
reflected in the very low interest rates
available for easy access current accounts,
with the latest deals being at below 1.5%,
compared to in excess of 2.5% prior to the
launch of FLS. Most commentators feel that
2015 will be the year The Bank of England
increases the base rate from its record low
of 0.5%, but despite the current period of
low inflation, this is highly unlikely to happen
until the third quarter and possibly not at all.
House prices
Our observations
The use of offices in London for conversion
has reduced stock levels and it is
Printing House Yard, E2
anticipated, over the next 12 months, that
rents and capital values will increase as a
result by around 5%, making it the leading
sector in this respect. Secondary retail is
not expected to grow over the forthcoming
months, whilst industrial premises are
expected to experience marginal growth.
Net balance %
60
40
20
0
-20
-40
-60
-80
1998
2001
2004
thresholds, and vendors with property
valued at just above the old thresholds will
benefit from an increase in demand and
potential to set price according to value, not
stamp duty bracket. We anticipate the top
end of the market will suffer though; a house
selling for £2,005,000 will attract a little over
£10,000 more in SDLT than before. The new
mortgage rules put in place by the Council
for Mortgage Lenders (CML) are thought to
have slowed the arrangement process
down, but have otherwise not affected the
2007
2010
2013
Source: RICS UK Commercial Market Survey Q3 2014
Rent expectations
House prices continue to rise at a steady
rate; Halifax reported in their November
survey that the annual change was 8.7%,
whilst Nationwide, at the same time,
reported an annual change of 8.5%. Both
surveys showed a small reduction in growth
from the month prior. Other surveys show
the largest rate of reduction in growth as
being most evident in London and the South
East, with a drop in enquiries being reported
by agents, and some deals falling through.
House prices are higher now than they were
at their peak in the third quarter of 2007, but
because of low inflation, they are still
considerably more affordable.
The Chancellor’s reform of the Stamp Duty
Land Tax (SDLT) rates, in his Autumn
Budget, are expected to give a modest
short-term boost to the housing market,
with its impact fading in the medium term as
the market adjusts. The new system is
considered fairer than before because the
changes from one rate to another are
progressive, rather than stepped. Buyers will
make the biggest saving at values just
above the old £250,000 and £500,000
majority of applications. The new rules
require a far more detailed questioning
process; a move away from Interest Only
mortgages and a greater emphasis on
lenders to provide advice to applicants, with
borrowers having to specifically opt out
(referred to as ‘Executive Route’) to avoid
what is now termed as an ‘advised sale’.
UK rent expectations for all sectors can be
seen in the graph supplied to us by the
RICS. During the course of 2014, properties let by
our Agency Department, rather than sold,
accounted for 71% of all transactions. This
statistic shows a small reduction in the
number of properties sold by us which could
be an indicator to support the recent claim
by some clients that gaining funding has
become more difficult of late. Of those
properties let, the average lease length was
5.5 years, with an average of 1.8 months
rent free period being granted per lease.
Circa 35% of leases included a tenant
break clause terminating leases an average
of 3 years from the start of term. Looking
at our statistics sector by sector, industrial
premises have been incentivised more
greatly than those of office and retail
premises, with an average of 2.2 months’
rent free being granted per lease, whilst
43% of leases agreed during the course of
the year were subject to tenant break
clauses where notice could be served
terminating the lease in an average of 2.9
years from the start of term. These
statistics suggest either over supply of
industrial premises, or that tenants looking
for industrial premises are more
commercially minded than those looking
for office or retail premises. The latter is
supported by the fact that retail premises
have attracted tenants who on average
have taken leases for a length of 8.5 years,
almost double the lease lengths agreed in
the other sectors. We observed an
increase in deals done in respect of large
industrial properties; the average unit size
let was 8,637 sq. ft., with a total floor area
of just under 1,250,000 sq. ft. being
transacted on. Land sales continue to
buck the trend against renting, with 53% of
deals done being sales. 90% of all our
deals in the retail sector were lettings. This
is likely to be as a result of the sector being
dominated by professional landlords who
have been reluctant to sell as growth in this
sector has been minimal and they wish to
continue to hold the investment until the
market improves.
We, like most of our clients, have become
accustomed to the difficulties in the
economy and although the recovery is
likely to be drawn out, there are many
opportunities and ample activity. We can
accurately analyse property transactions
and provide sound advice to owners,
occupiers and developers. We feel able to
offer effective solutions which should, to a
large extent, capitalise on the stable
economic situation anticipated for 2015.
Chris Tidder
[email protected]
It's a done deal!
Below is a selection of property transactions that Kemsley LLP have recently concluded.
SOLD
LET
SOLD
38,240 sq ft Industrial/warehouse
Elizabeth Way, Harlow
Denver Site, Rainham
1.2 acres
10,549 sq.ft Industrial unit
Rowhedge Close, Basildon
LET
SOLD
SOLD
10,373 sq.ft Industrial unit
Dagenham
27,000 sq.ft. Warehouse
Beam Reach, Rainham
0.84 acres Development site
Sutherland House, E17
LET
Basildon
Paul Cooper
Chelmsford
Tim Collins
[email protected]
[email protected]
David Sewell
Stephen Hiner
[email protected]
[email protected]
London
Mike Lawrence
Romford
Colin Herman
SOLD
[email protected] [email protected]
Unit 2 Ashton Gate, Harold Hill
10,149 sq.ft
Will Tait
Ben Collins
[email protected]
[email protected]
1,495 sq ft Period Office
Great Baddow, Chelmsford
LET
LET
LET
Unit 1A Woodford Trading Estate,
Woodford 5,460 sq.ft
Brentwood Offices 9,359 sq ft
Let to Chubb Insurance Ltd.
19,554 sq.ft Industrial/warehouse
Marsh Way, Rainham
LET
SOLD
LET
39,599 sq.ft Warehouse
Marsh Way, Rainham
20,581sq.ft Industrial unit
North Woolwich Road, E16
1,170 sq.ft Industrial unit
West Point, Basildon
www.kemsley.com
Offices in:
Basildon 01268 532425 Chelmsford 01245 358988
London 020 7422 6350 Romford 01708 766733
www.kemsley.com
LET
LET
SOLD/LET
6,250 sq.ft Industrial unit
Bakers Court, Basildon
624 sq.ft Shop
Stoke Newington, N16
Various Industrial/Business Units
Rainham Road North, Dagenham
LET
SOLD
SOLD
8,850 sq ft Industrial/warehouse
Tattersall Way, Chelmsford
7,179 sq.ft. Industrial/warehouse
Dolphin Way, West Thurrock
17,675 sq ft Industrial/warehouse
Galliford Road, Maldon
LET
LET
LET
10,243 sq.ft.Industrial/warehouse
West Thurrock
270 sq.ft Shop
Fenchurch Street, EC3
15,697 sq.ft Industrial unit
Repton Court, Basildon
LET
SOLD
LET
Various offices, Ingatestone
Mixed investment property
High Street, Ingatestone
8,284 sq.ft Industrial/Trade Counter
Rainham Road South, Dagenham
LET
SOLD
LET
SOLD
2448 sq.ft A1/D2 premises
Ludgate Hill, EC4
3,096 sq.ft Modern Office
Hoffmanns Way, Chelmsford
2 acres
Keirbeck Industrial complex, E16
VALUATIONS
COMMERCIAL AGENCY
INVESTMENT
LANDLORD & TENANT
PROPERTY MANAGEMENT
RESIDENTIAL LAND
RESIDENTIAL AGENCY
Head of Professional
Steve Metcalfe
[email protected]
Head of Agency
Colin Herman
[email protected]
Head of Property Management
Tom Kinloch
[email protected]
BASILDON
The Capricorn Centre, Cranes Farm Road, Basildon, Essex SS14 3JA
Tel: 01268 532425 Fax: 01268 532401 Email: [email protected]
CHELMSFORD
113 New London Road, Chelmsford, Essex CM2 0QT
Tel: 01245 358988 Fax: 01245 356758 Email: [email protected]
LONDON
61 Brushfield Street, London E1 6AA
Tel: 020 7422 6350 Fax: 020 7422 6351 Email: [email protected]
ROMFORD
Midland House, 109-113, Victoria Road, Romford RM1 2LX
Tel: 01708 766733 Fax: 01708 741633 Email: [email protected]
This document has been prepared by Kemsley LLP as a guide to the economy and property market in the South East. It is not intended to act as an investment guide.
The content is believed to be reliable, but Kemsley LLP accepts no liability for errors or omissions. Recipients should not act independently on this content. The views, forecasts, and
estimates are those of Kemsley LLP and should not be reproduced without written approval.
A N A LY S I S • A D V I C E • S O L U T I O N