The season of Advent is upon us, that wonderful period of expectancy giving us the lead-in to Christmas.
Many of us will have made a start in the increasingly frantic preparations for the holiday. Cake baking is under way, lists are being compiled, letters to Santa are being composed and the turkey has been ordered.
Little fingers are busy opening Advent calendar doors one by one, eager to see what delights might be in store; a sweet perhaps, images of the unfolding Christmas story or images of gifts that might be received in the near future. Advent is all about looking -forward, so it seems appropriate to look at the property market’s Advent calendar, to see what we might hope and expect to enjoy in the new year – if we are good boys and girls, of course.
The first few doors might well harbour images of the London market, due to appreciate further in 2015, as overseas investors continue to pursue assets in the capital.
Tenant demand across the sectors is feeding welcome growth into the system, lease lengths are also getting longer and competition for accommodation is heating up.
We will certainly find low interest rates behind one door, likely to continue over the mid-term to assist borrowers and investors alike; this is indeed a welcome present from the governor of the Bank of England.
While it feels like “boom time” within the M25, we can also see improvement in the take-up of industrial space across much of the UK, one of the better indicators of the broad foundations of this economic recovery. The stronger regional centres are seeing improvements in demand for space and increasing levels of activity in their individual local markets. Retailers – even taking into account a post-MAPIC glow – are reporting a favourable outlook for the new year.
The commercial auctioneers, a public barometer of investor sentiment, have reported a 16% increase in sales on the year to date, according to the Essential Information Group’s November report, with more than £1.3bn of realisations over the preceding 12 months.
We see new buyers joining the market at every sale as interest rates remain low and prospects for rental growth and income security continue to improve. The appeal of bricks and mortar over cash is all too apparent. The supply of investment stock in both transactional disciplines of the market looks to remain good, particularity as some of the buyers of loan books over recent months have started divesting. UK investors look set to continue to take advantage of the ever- greater demand from overseas investors for UK assets.
We are likely to see further improvement in lending conditions; there has been an increasing number of non-bank lenders entering the market over the past year. With the return of the main banks to the fray, competition is keen – particularly to finance the better deals – and loan volumes have risen significantly. What will surely be a -consequence is that higher levels of risk will become more acceptable and loan quality could deteriorate. Wait a minute… haven’t we been here before?
Not every door in the Advent calendar reveals one’s heart’s desires, however. My five-year-old son was mightily put out to find the image of a doll behind door number one and not a train set. Our calendar is likely to show continued patchy recovery in some regions, with pockets of low consumer income, lack of tenant demand and some areas clearly in need of further rental adjustment. These are issues that will take more than a good Christmas to resolve.
We have opened most of the doors of the Advent calendar and now have a reasonable view of what might be on offer. What could there be to upset this upbeat and festive mood? Hold on, we haven’t yet found a picture of Santa and there seems to be one door that we haven’t opened – it’s door number 10. Let’s have a look… Who is this chap we can see? He may not have a beard, but he looks very festive with his pint of beer and a cigarette. It certainly isn’t Santa, but I feel he may come with an ’elf warning.
Duncan Moir is a partner at Allsop
