The mood across the industry is decidedly more positive than it was a year ago, according to Estates Gazette’s latest Sentiment Survey, but it’s not time to pop the champagne corks just yet, as experts warn in this roundtable debate
The panel
• Graham Parry, head of research, Britain and Ireland, Grosvenor
• Bill Grimsey, retail turnaround specialist and former chief executive at Wickes, Iceland and Focus DIY
• Grenville Turner, group chief executive, Countrywide
• Chaired by Emily Wright ?features editor, Estates Gazette
Does the shift in sentiment accurately reflect the direction the industry is going?
Graham Parry: It is broadly in keeping with what we have seen on the economic front. We have had two consecutive quarters of growth and that growth is now moving beyond just the services sector. But we are not completely out of the woods yet; unforeseen shocks, such as a renewed eurozone crisis, could still knock us off course.
Bill Grimsey: The current rate of growth, and the way we are coming out of this recession, is the slowest we have ever experienced, so I think it is important to recognise that the market won’t take off in quite the same way as when we have emerged from previous recessions. The fundamentals of the economic situation in this country have not really changed in the sense that household disposable income, in real terms, has fallen. And it is not showing any signs of growing, so we need to be positive, but sensible.
The survey found 37% more confidence in the market than in the previous quarter. Is that what you are noticing?
GP: The growth has translated into an uplift in rents, but obviously the concern in the office market is whether it is too expensive. There have been a lot of safe-haven inflows into the central London office market; prime office yields are very low. But when you look at rents, they are still below their long-term average, so there are prospects for a continued upswing on the rents side and that is positive for growth.
What does the future look like for housing?
Grenville Turner: We have been building around half the number of new homes we need – 130,000 when we need 250,000. The Help To Buy scheme has improved housebuilders’ ability to sell their existing stock, but they also must build more.
The strength of the rental market generally has meant that the economics of rental are becoming better understood, and I suspect that over the next three to four years you will start to see greater inroads being made there.
BG: There is a link between this housing issue and the dilemmas facing our town centres: we have somewhere between 30,000 and 40,000 empty shop units in this country today and too much retail space.
The town centres need to get greater populations inside them. We need joined-up thinking to take this forward and try to see how you can use those assets as affordable housing to ease the situation.
Sentiment proved subdued in retail and leisure. Why?
BG: As a consequence of the current changes that are taking place in technology converging with the economic downturn, the pressure on retailers that have bricks and mortar is huge because those costs are high. And, as sales migrate to online, you can bet that by 2020 something approaching half of all ?non-food products will be purchased online.
You are also going to have the change that is going to happen when the 25-year upward-only rental leases that were signed in the late eighties start maturing from 2015 onwards. That will have an impact because there are going to be a lot of retailers out there wanting to get out of that stuff. It will impact the out-of-town shopping parks as well as the high street.
Overall, I am not surprised to see that retail has not responded in quite the same way as the other sectors, because it’s a tough one. The millennials who are 13 years old today are growing up in an environment where they are going to be so au fait with mobile technology, and it is going to change in such a way that I cannot see this getting any easier. We need a plan to get around this.
GT: There is a considerable conversion of former commercial property to residential. During the recession, housebuilders recognised they had stopped building what people wanted and there was just mass one- and two-bedroom apartments. When the crash happened, no one wanted to live in them. Now builders have shifted quite considerably to two/three bedroom houses with gardens that people actually want to live in.
Planners are adjusting too, recognising that while density is attractive economically, it does not create the communities we want.
BG: Also, in the next 10 years there are going to be twice as many people over the age of 80 in this country than there are today. Where are they going to live?
Loneliness is a big issue, so what are towns actually going to mean in the future? How do they evolve and take care of the emerging community and social issues and blend them with the economic reality in the microeconomic situation of a town? The fact is that local authorities don’t necessarily have the skills or the techniques to deal with that.
Is foreign investment an unqualified good thing?
GP: In the first quarter, foreign inflows into the central London property markets were greater than investment in the rest of the UK combined, and it is not hard to see why: global investors are focused on winning global cities and London is always at the top of that list. They are very much interested in prime assets, too. But with the recovery we are seeing an increased appetite for risk from investors, and that should see the money moving probably to the South East first: university towns, cathedral towns – areas that have their own affluent community with vibrant local economies that benefit from the linkage with London.
What do you see happening over the next 12 months?
GT: The US is a really good proxy, because the US market went into recession 12 months before the UK and probably came out of the recession 12 months before as well. So, if you are looking at what is happening in the US now, they are seeing price rises of around 10% and transactions up around 10%, which I think is quite possibly an indication of what we will see over the next 12-18 months in the UK.
GP: It is still a long road ahead in terms of the recovery, but we are cautiously optimistic that we are finally moving beyond the stall speed that we have been stuck in; moving to a more sustained return to a new normal, which probably won’t be as strong as the ?pre-crisis growth but still strong enough to continue ?to support growth in the property sector.
