Investment into property is flying, with many even muttering how 2014 could be a record year. But there are better indicators of the health of the market right now.
Among economists’ favourite indicators is the purchasing managers index, perhaps the best indicator of occupier market confidence. With the CIPS/Markit commercial property construction PMI for September reaching its highest level since 2007, rents appear well placed to stay healthy through 2015, even if the investment market slows.
In truth, the September UK construction PMI rise was modest – from 64 in August to 64.2. But it was only the second time since August 2007 it had exceeded 64, so it’s not an increase to be sniffed at.
Roger Bootle’s Capital Economics looked at the index in more detail. The civil engineering balance rose from 59.9 in August to 61.5 in September, the highest figure in six months and roughly 10 points above the average for the survey’s 17-year history.
By contrast, the residential construction PMI slowed from 66.4 in August to 65.8 in September, a four-month low, which, said the economists, was “consistent with signs of a wider cooling in the housing market”. Nevertheless, they added, “The latest housebuilding figure is… nothing to be too concerned about just yet.”
But what of commercial property construction? That PMI rose from 61.8 in August to 63.9, an eight-month high and “essentially as strong as any reading since 2007. This suggests that developers’ confidence in the prospects for occupier demand is robust and that rental growth should continue to accelerate”.
Rents, said the economists, citing comparable data from IPD, looked on course to rise by least 5% year-on-year by mid 2015, which “would be the fastest pace seen since the early 2000s, comfortably exceeding the 2006-07 peak”.
Of course, Capital Economics wouldn’t be the respected house it is if it didn’t inject a note of caution. “It is worth bearing in mind that over 2011-12 rental growth undershot the path implied by the PMI. And given the continued struggles that many regional retail markets are having with overhangs of empty space, a repeat of that episode cannot be ruled out.
“But precise forecast numbers aside, the bigger picture is that this upswing in occupier demand and rental growth has much further to run. This will mean that, despite a looming floor for yields, capital values will continue to rise next year.”
¦ Corporate activity is flying. From Valad Europe launching a hunt for a new partner to replace current majority shareholder Blackstone, to Colliers acquiring consultant AOS, the M&A business is going great guns.
And, at the risk of sounding like a broken record (or a faulty MP3, to update the reference), there will be more. Each week brings a tale of a deal, a meeting or a detailed discussion that is moving forward or breaking down. Most weeks deliver all of the above.
¦ Five world-famous architects have exclusively sketched their vision for London 2024 in the autumn 2014 edition of the Estates Gazette London Investor Guide.
The guide, launched this week, features a bespoke, five-page fold-out cover to create a map of London 10 years from now as imagined by Make Architects’ Ken Shuttleworth, Farrells’ Sir Terry Farrell, AHMM Architects’ Simon Allford, Adam Architecture’s Robert Adam and PLP Architecture’s Lee Polisano.
This edition of the publication focuses on both current and upcoming real estate opportunities in London. From present trends, such as occupier relocation patterns, to the development pipelines that will show investors where to look next, the London Investor Guide is a must for anyone looking to make the most of the city’s burgeoning property market. Download your copy from the EG app or view the digital edition.
damian.wild@estatesgazette.com
