Analysis: EG asks more than 100 of London’s property players to give their views and forecasts for the property market. By Stacey Meadwell
No one is going to be shocked to read that it is not a happy time to be working in London’s property industry. EG has gathered the opinions of more than 100 property players across the capital to gauge how they are feeling and gain their views on market prospects for 2009.
We will repeat the exercise at regular intervals throughout the year to track changes in sentiment. So just how bad is it right now?
The results indicate that redundancy and profitability are high on the list of concerns. A spate of culls from all facets of the sector has sent shock waves through the industry, but two-thirds of those interviewed believe there is more to come. Almost 70% predict further large-scale redundancies (see graph 1).
Not surprisingly, business profitability remains the top priority, but reducing property costs and improving cash flows also rank highly.
Concerns over business and jobs are mirrored by the view that the London market is weak. The majority say that securing funding is difficult, and most respondents expect developments to be either put on hold or stagnate after planning is secured (2).
This might work in developers’ favour, says Roger Hepher, head of planning and regeneration at Savills. “Developers and investors with money increasingly have a glint in their eye at the prospect of being able to make opportunistic medium/long-term purchases in a profoundly depressed market,” he says. “They realise, too, that they can expect to be able to negotiate more favourable planning permissions now than in the future.”
Bottom of the market
For those in a position to buy, determining the bottom of the market remains key. The consensus in the survey is that capital values have already fallen between 11% and 20% in the past six months (3). Almost half expect further falls in the next six months. Two-thirds put the drop at a figure of 5-10% (4).
Paul Stewart, head of UK research & strategy at ING Real Estate Investment Management, says: “Over the next six months, we expect that vacancies will rise and rental growth will continue to fall, with further negative implications for yield and thus capital values. This is equally true for both City and West End locations. However, yields are already significantly above longer term ‘fair value’ for a location, thus a huge opportunity is now building for new market entrants.”
There is a similar feeling about rents – (5) and (6).
Rob Brook, managing director of Kenmore Property Group, says: “The upcoming attempts to recapitalise the quoted sector will be a real litmus test for investor sentiment towards the sector, and it will interesting to see which management teams are backed to take advantage of market opportunities.”
Funding is deemed to be the biggest threat to London’s property market, followed by a lack of occupiers and occupier insolvency. In terms of troubled sectors, retail tops the charts – in particular, shopping centres – but the reality is there is no confidence about any sector in the capital (7).
The strongest glimmer of hope is coming from residential. Although half of respondents in the survey believe there will be no improvement in any sector over the next six months, almost 28% singled out residential as showing signs of improvement (8).
EG’s next survey will be conducted in June as the six-month deadline for half-year reports looms. There is an overwhelming feeling of gloom (9) for the next six months, but perhaps by then there will be clearer idea of how the recession will play out and to what degree, if any, there is a light on the horizon.
