Supply of homes continues to outstrip demand

Tesco restarts its store development programme

“House prices will rise steadily in-line with inflation”

Signs of a turnaround in London’s commercial property market

Void periods have stabilised

According to Hometrack’s latest national housing survey, the supply of homes for sale (3.7%) continues to outstrip demand (1%) as the election is cited as a common factor behind increased buyer uncertainty.

Buyers are taking longer to commit as the number of viewings per sale has increased for the third consecutive month in a row. Fewer bargain properties are on the market which when set against a backdrop of sluggish economic growth and rising unemployment levels has led to increased caution among buyers willing to commit.

The proportion of the asking price being achieved remains unchanged at 94% which is the first time this measure hasn’t risen for 13 months. According to Hometrack, evidence suggests that agents are finding it increasingly difficult to maintain price rises while still achieving sales volumes – the average time to sell has reached a plateau at 8.3 weeks. Property prices are up by +0.2% in April, compared to March, which is -1% less seen in the last two months although a well-above average growth in London house prices of +0.6% has flattered the average monthly price increase. Over the last 12 months, property prices are up by +1.8%.

Richard Donnell, Hometrack’s director of research, said: “ The bounce in market confidence over 2009 was all about pent-up demand feeding back into an undersupplied market. However, the fundamental issues which have plagued the economy for some time still remain. Rising unemployment, lack of mortgage funding, public spending cuts and the prospect of tax rises post-election, continue to act as a back-drop to a fragile and increasingly polarised housing market.

“The near term prospects for the housing market are intrinsically linked to demand which in turn is reliant on strong consumer confidence. The outlook for the economy and jobs market as well as household finances all impact on housing demand and buyer behaviour. With an election well under way, it is not surprising that buyers are currently hesitant in their decision making, the question is whether market sentiment will improve once the result of the election is known.”

Tesco restarts its store development programme

Supermarket Tesco is looking to expand its store development programme by +40% compared to last year, as projects are restarted.

The £1.6bn expansion will start this year, particularly focusing on major mixed-use developments. Tesco plans to build a total of 2.4m sq ft this year, a rise of +41% on the 2009’s below average of 1.7m sq ft. Six have already begun work, including two sites in south London.

These mixed-use schemes have changed somewhat since they were originally proposed. Over the past year Tesco has reworked them so they can be phased over a longer period in order to be more responsive to changes in the market. Building reported that several of these schemes have had the residential element reduced. Tesco cut part of its mixed-use development team at the start of 2009 as the recession bit into its expansion plans, causing it to review its commitment to city centre regeneration schemes.

Other supermarkets, including Morrisons and Sainsbury’s, have announced store expansion plans in recent weeks. It is also thought that Waitrose has been in talks about expanding its programme.

“House prices will rise steadily in-line with inflation”

The outcome of the recently held London’s Annual Great Housing Market Debate is that property prices will rise steadily in-line with inflation over the next few years with no sign of a double dip in house prices this year.

The panellists at the debate believe that house prices will flat-line this year. However, concerns were expressed about a further boom/bust period beyond this as demand continues to outstrip supply and if mortgage availability improves.

Panellist John Heron, managing director of Paragon Mortgages, said: “The key feature behind the strength of house price rises recently has been the shortage of supply and the low build rates and when compared to demand, this is likely to carry on. We will continue to see owner occupiers sitting on their hands benefiting from low interest rates and pocketing the extra cash.”

The panel did not see lending returning to “normal conditions” in the short-term and furthermore could see no reason why lenders would be compelled to increase loan-to- values (LTVs) while banks are required to hold more capital and regulation means higher mortgages costs.

Panellist Martin Gahbauer, chief economist of Nationwide Building Society, said: “The short-term reality is that the funds are simply not there at the moment; essentially the UK banking industry and mortgage sector faces a funding gap of several hundred billion pounds. The industry’s big challenge over the next couple of years is to refinance the existing stock of lending. The funds that are available for new lending are barely enough to cover the demands for lower LTV lending at around 75-90%. So the incentive for lenders to move further up the risk curve to 90% is limited simply by the amount of funds available, particularly in light of the uncertainty about future regulatory and capital requirements.”

The consensus of the panel was that the rental market was set to grow from around 12% at present to 20% in ten years time. A vibrant rental sector was welcomed as good for the economy and the only alternative for many would be first-time buyers for whom finance was still largely unavailable. Net immigration to the UK, more demand for single occupier property and need for a more flexible workforce were also seen as key factors.

The debate finished on the controversial topic of Home Information Packs (HIPs), with an overwhelmingly vote to “adapt not scrap” the current pack. Just four people in the audience of more than 100 voted to scrap HIPs despite the pledge by both the Conservative and Liberal Democrats to do so if they take power in May.

Signs of a turnaround in London’s commercial property market

According to the Royal Institute of Chartered Surveyors’ (RICS) latest commercial property survey Q1 2010, there are signs of a turnaround in some sectors of London’s commercial property market which has pushed rental expectations for London offices up at the fastest rate in over two years.

For the first time since Q4 2007, rental expectations rose above zero for London offices as available space declined for the second consecutive quarter. The positive net balance of 57%, compared with the previous reading of zero, for central London office property was the biggest upward jump on record. However, for the rest of the UK, available space is still rising and rental expectations are still negative.

Lettings activity across office and industrial property continued to improve in the second quarter, although investment demand has moderated somewhat outside the London metropolitan area. The retail sector continues to languish, particularly in the Capital where rising space continues to weigh on rental expectations.

Although confidence in the outlook for lettings increased, sentiment was slightly less buoyant at the end of the fourth quarter of 2009. Some surveyors voiced concerns over the impact on regional lettings activity of public sector employment cuts following the upcoming election.

Oliver Gilmartin, RICS’ senior economist, said: “The latest results suggest that a still modest recovery in lettings demand has greatly lifted rental expectations for London offices where development has floundered in recent years due to a dearth in development finance.

“There are some signs that a lower pound and a gradual rebalancing of the UK economy towards greater export activity is starting to feed through into industrial lettings activity most notably in London and the South. Office lettings activity continues to rise modestly across the country although surveyors still remain cautious.”

Void periods have stabilised

Void periods for rental properties remain high but have stabilised, according to new figures from the National Landlords Association supplied by research consultants BDRC Continental.

In March 2010, 52% of landlords had experienced voids in the previous 12-month period, which is a reduction from 55% during the last three months of 2009. The data also showed that the average duration of voids dropped from 19 days to 17 days.

Despite a marked increase in tenant demand and a reduction in supply as ‘reluctant landlords’ are able to sell their properties, there is still only a slight improvement in rental voids. Furthermore, the continuing lack of available mortgage finance for first time buyers, as well as the requirement for higher deposits, means that would-be buyers are renting for longer.

The strategy adopted by landlords for covering voids continues to vary depending on portfolio size. Although larger landlords are most able to offset the costs of voids with rent from other properties, 43% of landlords claimed to use personal savings to plug the shortfall in meeting mortgage repayments.

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