Paul Vick Architects recently won Finance Monthly’s Game Changers Awards 2018. They are a growing, agile practice based in West London. Their unique blend of skills and experience is backed up with a client-savvy world-view that sets them apart in their profession as does their 100% planning permission record on over 100 projects. The company’s Cambridge educated Director Paul Vick discusses the challenges faced by clients today.
What are the biggest challenges facing development?
Armed only with a commercial need, a strategic target, and an investment appraisal, risk and uncertainty loom large in the average construction client’s mind. Digital connectivity has laid bare how many different stories there are trying to make sense of the chaos of data and disordered world we work in. They have to stare through the fog of unknowns and lean on past performance, current valuations and economic indicators – any crutch, in fact, to mitigate risk. After all, huge sums of money are involved and whether they spend equity or take on debt, it all has critical implications for the wellbeing of their organisation.
And when the only constant is change, designing only for today’s conditions is a sure way to guarantee a sub-optimal solution.
What are the key issues clients face in relation to UK regulations and what are the incentives to encourage foreign participation?
Planning permission is a definition of viability – without it buildings don’t get built, investment is not forthcoming, and you are left with stranded assets. Stories of intransigent planners, vocal neighbours, mykfcexperience survey and delay are commonplace. Sometimes this is a result of an incomplete understanding of the process and the pressures planners face.
Our job at Paul Vick Architects is to confront uncertainty and negotiate remaining unknowns and trends intelligently in relation to the client’s brief. At the same time, we approach value from the start to enhance your business plans. The model we have developed addresses economic, use, identity, community, environmental and cultural values together to give opportunities for multiple users and positive feedback loops for your benefit. There is not much point in receiving planning permission for a care home, student hostel or hotel without enough rooms to make it viable for example.
The UK is known as being a structured and reliable environment to work for long-term interests – essential to successful construction projects.
The traditional distance of the developer to the user has become shorter. The public nature of development means users and neighbours have a louder public voice. They can be your supporters and market, and the developer seen as a catalyst for regeneration. An understanding of user needs is not just important to the planning process specifically, it is also important to the conception pre-planning and the physical detail delivery of it for user satisfaction.
For an office owner-occupier, that might mean design that attracts the best staff, encourages them to stay longer, work more productively and, ultimately, to make a more profitable enterprise. For investor-developers, that might mean private rented housing designed with a marketing cachet for cultural and social opportunities that commands premium rents, long leases and zero voids. For a museum, it might mean spectacular staging in and outside galleries themselves to create a destination powerful enough to attract people away from their screens.
Can you give examples where you have created value enhancement above client expectancies?
Apartments and Penthouses, London, UK. After some study, we agreed in a pre-application with the council that 100% increase in area would be acceptable. Previous consultants had thought only 25% was possible.
New Mini-Department Store, West End, London, UK. Our design increased the visibility of selected brands and improved the management and speed of stock delivery in store to boost client’s customers’ loyalty.
Daylight Studio, London, UK. Our design anticipated the client’s need to adapt over time to new media and alternative revenue streams, leaving them very satisfied.
Regeneration of a historic site with 7,000sqm of offices and retail, 80-bed care home, boutique hotel, low-energy homes, and museum, UK. The key objective is to design a destination to drive footfall, room occupancy, and sustainable client revenue.
Start-Up Hub, Innovation Warehouse, London, UK. Eschewing the trendy playroom motif, our fit-out supports growing, developing and selling ideas, and has nurtured several entrepreneurs who have turned into unicorn businesses.
Glass Bridge and Office Fit-Out for Global Communications Company HQ, London, UK. Our design crystalizes an identity that emphasises connectivity and facilitates idea-sharing.
What is your overall vision?
The magic needed to turn the faceless development appraisal with all its risks and changing parameters into successful ‘output’ value is understanding the various ‘input’ values. The examples above are about how user motivation and inspiration are harnessed - attracting them to come, stay, and return, as well as the word-of-mouth marketing will make the development attractive and relevant for longer. Focusing on the user is essential for any business.
Website: http://paulvick.co.uk/
To hear about real estate and construction in Africa, Finance Monthly reached out to the Executive Director of Tanzania-based Epitome Architects Ltd. - Nuru Susan Nyerere – Inyangete. Established in 1998, the company provides architectural, interior design, planning, contract administration and project management consultancy services. At Epitome, Nuru is in charge of design, procurement (especially international), quality assurance, whilst she also heads the company’s Real Estate Development wing in Nigeria.
What would you say are the most common types of projects that you work on?
We are not geared for a specific building type as in Tanzania, like many African countries, the economy is not big enough to sustain architects who are specialised in a specific building type. Thus, we have built a team with the capacity to successfully undertake a variety of projects.
We are very fortunate to work on a wide variety of building types i.e. corporate buildings (for both private and public clients); commercial and mixed use. We’ve also worked on petrol stations, banks, schools and universities, residential buildings – and the list goes on. We are one of the few Architectural firms in Tanzania that have worked on a number of health related projects.
Additionally, our portfolio also includes international projects such as Utako Bus Terminal in Abuja, Nigeria and Rwanda People’s Bank in Kigali.
Our work ethic and drive to satisfy our clients have enabled us to get numerous word-of-mouth referrals.
What specific tactics do you implement when assisting clients with development strategies?
What are the challenges that your clients typically face prior to embarking on a new project, in relation to laws and regulations?
A key challenge for our clients is matching their expectations and needs to the resources available, the regulatory requirements and the cost of compliance.
Processing of Statutory approvals like building permits, change of use (where change of developments use is required) is long drawn out and bureaucratic. In addition, every project needs to register with various regulatory bodies like AQRB, ERB, CRB and also undertake studies such as Environmental Impact Assessments (EIA), all of which are costly. Additionally, if the project involves acquisition of funds, the process may take longer than the client’s timeframe.
In regards to building laws and regulations, a potential challenge can relate to gaps in legislation, such as the absence of building codes for example. Change in policies can also cause numerous issues for our clients.
Do you have a mantra or motto you live by when it comes to helping your clients with the development of a project?
Our Motto is: ‘Strive for excellence regardless of project size’. Our business ethos is built on being loyal to our clients and the profession in our advice from the outset and our clients appreciates this.
Like the digitisation of all things, challenges will be faced and there are benefits to reap, but often such progress doesn’t take place because the correlation between the two isn’t a positive or favourable one. Below Gemma Young, CEO and Co-Founder of Settled, discusses with Finance Monthly the future of digital in the property sector.
Property is our most important asset class, it's also our most emotional asset. Therefore, getting our home sale or purchase right is not just a big deal for consumers, it's a big deal for the wider UK economy.
Unlike other industries (travel, music, taxi services to name but a few), the real estate model has clung to its traditional roots. Even with the advent of “online” estate agents now in existence for the majority of this past decade, the industry has been slow to adopt the opportunities a digital revolution presents. It’s therefore unsurprising that we're still seeing the same issues; typical property transactions take over 3 months with 1 in 3 transactions breaking. This drives consumer losses in excess of £250m each year.
Looking forward, is 2018 going to be the year for true transformation? Will ‘proper’ property technology companies make a dent in the things that matter?
What drives transformation?
Technology
The emergence of truly disruptive technologies including artificial intelligence, virtual reality, blockchain and drones all hold their potential disruptive keys to a more progressive future. Not only are technologies proliferating, consumers also have easy access to them from their smartphones.
Empowered individuals
Tech-enabled consumers search for greater transparency, more control and ultimately more progressive solutions to age-old problems. Their quests for modern, digital solutions provide exciting opportunities for change.
Investment
2017 saw the most significant investment in ‘proper’ proptech to date, with a new and forward-focused collective attracting financial backing from VCs and traditional property players.
Regulation
Central and regulatory initiatives represent a particularly exciting shift. The latest Government call for evidence “Improving the home buying and selling process” and the HM Land Registry’s Digital Street scheme look towards a future where technology (including blockchain) will make the transfer of property ownership much more fluid. Such initiatives shine a light on the underlying problems apparent in the UK property market and signal a commitment to a more open and less guarded future.
How does this future look?
As we see this convergence in consumer, regulatory and technology worlds, this more futuristic property market is well within reach. So who wins? The opportunity to embrace and adopt new technology is open to all, however, historically, traditional incumbents have been slow to move in many sectors. They, therefore, get left behind or quite simply, left out. We don’t have to look far to see examples; Blockbuster and HMV are businesses which didn’t, in time, connect to the opportunities of the next generation. As a result, nimble and forward-focused entrants Netflix and Spotify won the respective leading positions in the new world. Much like in the movie and music sectors, forward-focused businesses tend to win in other worlds.
Settled.co.uk is one example of a real estate business that is connecting across these converging elements at quite a unique time in real estate history. Settled’s unique technology has significantly increased the likelihood of completing on a home and has cut the time it takes to sell and buy in half. It presents the hope that, in the future, its technology will enable people to buy and sell properties in moments, not months. This is the kind transformation this sector needs.
Germany is no longer the most popular destination for commercial real estate investment, according to BrickVest’s latest commercial property investment barometer. Formerly the most popular location in Q3 2017, Germany has now fallen in favour among investors behind the UK, US and France.
Germany saw a drop in popularity from 34% to 23% in the last quarter, marking its lowest rating since Q2 2016. The UK, however, rose from 27% to 29% in Q4 2017, managing to sustain its favourability by consistently ranking above 25%.
Both the US and France have also gained popularity with investors, with nearly one in five (19%) preferring the US over other regions and 18% now selecting France as their location of choice (up 4% since Q2 2016).
The Barometer also revealed that the hunt for income ranked highest (38%) as the primary investment objective of BrickVest investors this past quarter. This has risen by 6% from 32% in Q3 2017.
Notably, interest in secondary cities as target markets continues to steadily increase (from 37% in Q3 2017 to 41% by the end of 2017). These include Birmingham, Newcastle, Bristol etc.)
Emmanuel Lumineau, CEO at BrickVest, commented: “Our latest Barometer reveals that Germany is no longer the favoured destination for commercial real estate investment, contrary to its position in Q3 2017. Rather, the UK has once again become the most popular region for our investors.”
“There have been similar changes in other aspects of the data, including the greater emphasis placed on the hunt for income and the growing popularity of secondary cities as target markets. As the year progresses and we continue to conduct our Barometer, it will be interesting to see how the industry adapts to these underlying factors affecting the real estate market.”
(Source: BrickVest)
This new year, there is one question on the lips of business men and women around the UK: “Is now the best time to purchase commercial property?” Thus, commercial property experts, Savoystewart.co.uk, have analysed how the market faired in 2017, and whether 2018 is the ‘peak time’ to buy.
The latest Property Data Report shows that since 2000, the value of the UK’s commercial property stock has grown, considerably, at an average of 3% each year – surprisingly, more than RPI inflation, which grows at an average rate of 2.8%.
Whilst exploring the report, Savoy Stewart found that the commercial property market in the UK in 2016 was valued at a staggering £883 billion, representing 10% of the UK’s net wealth. Investors now own £486 billion worth of commercial property in the UK; with overseas investors owning 29%.
In central London alone, around £2.4 billion was invested in commercial property, resulting in the total turnover for the end of July reaching a substantial £11.5 billion – a 24% increase on the same point a year earlier, in 2016.
July was the strongest month recorded for the City of London since March 2007, owing to the sale of the “Walkie Talkie” building – the UK’s largest single office building deal – which accounted for a staggering 61% of turnover.
Is now the best time to purchase commercial property?
2017 was a much stronger year than many ever anticipated. The economy pleasantly surprised many businesses and forecasters, with unemployment falling to the lowest level since 1975, consumer spending robust, and occupier take-up healthy.
According to Knight Frank, London office take-up is on the rise, despite the impact of Brexit, with demand in the West End at its highest for more than a decade. Savoy Stewart concluded, from their analysis of the research, that the third quarter of 2017 recorded the highest level of office take-up.
A substantial 3.8 million square feet of office space in central London was under offer and was due to close by the end of the year – and it is predicted to be the strongest final quarter since 2014. Office take-up in the West End alone reached 1.65 million square feet.
Trends in 2018
The uncertainty over the UK’s relationship with the EU will continue to cast a shadow over economic growth throughout 2018, resulting in a more cautious outlook amongst investors across all commercial property sectors. As a result, activity may be subdued, but it doesn’t
mean investment will stop any time soon, as investment volumes in the UK commercial property market, this year, are expected to total around £55 billion, per a report by JLL.
Savoy Stewart considered Savills ‘Sector Outlook’ and summarised the six main trends for commercial property in 2018:
Managing Director of Savoystewart.co.uk, Darren Best, discusses his view on commercial property investment in 2018: “As the figures show, despite the uncertainty around Brexit, London is still a pre-eminent city and performing better than Europe in some sectors. The research suggests that now is the best time to purchase commercial property in the UK, now that business confidence is more stable than many expected, which speaks volumes.”
He added: “The performance of the market, last year, surprised many of us. Occupiers are continuing to commit to London commercial property to satisfy their needs, and with the increase in foreign investment in UK commercial property over the last decade and overseas investors now owning 29% of UK commercial properties, it is safe to say 2018 isn’t going to be all doom and gloom – there will be scope for optimism too.”
December mortgage sales in the UK plummeted by 38% (£5.8 billion) on November, according to Equifax Touchstone analysis of the intermediary marketplace. Year-on-year sales dropped by 12.8% (£.1.4 billion).
Residential figures dropped dramatically by 39.6% (£4.9 billion) on the previous month. Buy-to-let sales also tumbled, falling by 32.1% (£853.7 million) on November.
All regions across the UK suffered from a significant mortgage sales contraction in December. The South Coast witnessed the largest slump of 42.1%, followed by the Midlands (40.6%) and Wales (40.3%). Mortgage sales in the North West fell 34.4%, the smallest drop across all the regions.
| Region | Total mortgage sales growth |
| South Coast | -42.1% |
| Midlands | -40.6% |
| Wales | -40.3% |
| North and Yorkshire | -39.5% |
| Northern Ireland | -39.4% |
| North East | -38.6% |
| Scotland | -38.5% |
| South West | -38.0% |
| Home Counties | -37.3% |
| London | -36.9% |
| South East | -35.8% |
| North West | -34.4% |
John Driscoll, Director at Equifax Touchstone, said: “After three months of consecutive growth, mortgage sales in the UK have decreased sharply across both residential and buy-to-let sectors. Traditionally, December is a slow month for sales due to the festive period and other seasonal effects. However, the level of decrease is somewhat concerning for the industry, especially when considering that mortgage sales are down £1.4 billion year-on-year.
“While we expect to see the usual New Year pick-up in the market following a festive dip, there are a number of factors at play which could alter the direction of mortgage sales in coming months. An uncertain economic and political outlook, the onset of Open Banking and whether this will facilitate faster mortgage applications, the end of the Term Funding Scheme and implications for higher mortgage rates, and the subdued forecast for house prices, to name a few, have set the scene for a volatile and uncertain market in 2018.”
The data from Equifax Touchstone, which covers the majority of the intermediated lending market, shows that the average value of a residential mortgage in December was £191,522 (2016: £196,682) and £150,914 for buy-to-let (2016: £158,967).
(Source: Equifax)
JADE+QA is an International design studio, founded by British Architect Martin Jochman Dip Arch, ARB (UK) RIBA based in the UK, Hong Kong and Shanghai. In 2013 Martin, who is the original Concept and Scheme Design architect for the Shimao Wonderland Intercontinental Hotel in a Quarry, signed contract with the developer Shimao to complete the design and overview the construction. Since then, Martin’s studio JADE+QA has designed a number of high-profile projects in China and South East Asia.
Prior to setting up JADE+QA, Martin has had over 25 years of UK and international design experience as an Associate and Design Director with an international design consultancy winning numerous national and international competitions and awards. He has worked in the UK, Europe, Dubai, Hong Kong and China on many high-profile projects, including the Jumeira Beach Hotel, the Wild Wadi Waterpark in Dubai, Tianjin TEDA towers, Wuhan Pebbles mixed development and other important landmarks. Here he discusses the construction sector in China and the work that his company has done thus far.
As a professional with over 25 years of experience in design and construction, what would you say attracted you to the field?
I come from artistic background with both of my parents being creative artists . This has obviously influenced me from early age to look at professions which could combine my interest in arts with other subjects I was interested. Architecture thus became quite obvious answer and I have therefore chosen this profession quite early in my life for my future occupation. I have been very fortunate to have had an opportunity to study at an excellent architectural school in Bristol and this creative environment has reinforced my resolve to become architect. To me Architecture is more than just a profession. It becomes almost an obsession, where each new design project is a new adventurous challenge, testing one’s ability to come up with new innovative solutions. No design problem is ever same. I am happy to say that even after almost 40 years, I am still excited and filled with trepidation when facing a blank piece of paper to start sketching new concept ideas.
What would you say are currently the biggest challenges in the field in China?
There are several major challenges that a foreign architect has to overcome in China. Firstly, the contractual process differs quite a lot from the UK practices. Whilst the overall principles of the design process are same, the contractual relationships, especially not giving the architect full authority to implement his design direction and the disjointed nature of the design/client team can be quite counterproductive.
Quite often, the “foreign’ architect, who relies on a Local Design Institute to submit the drawings for approval, is only given a limited scope, producing a Masterplan only or a Concept and Scheme Design, without the continuity of involvement in the construction detailing and construction itself. Communication and difficulty with coordination between the various parts of the project team can also contribute to the lack of overall control over the design process. This has great impact on the quality of the resulting building that ultimately depends on the quality and experience of the client and his management team.
We have been lucky to have had very experienced and professional clients, whose teams have avoided this situation - especially with our hotel projects in the Shimao Quarry Hotel, where the quality of the client’s management, both during the design and on site, has been exceptional.
The second major issue has always been the quality of workmanship on site. Again, as with design, the contractual authority of the designer is missing, with primary driver for the project being the budget and speed of construction. This often leads to cutting corners and reduction of the build quality.
What are some of the key issues that you and your client frequently face in relation to Chinese regulations?
A number of Chinese regulations, especially in design of residential buildings, limit the design scope of a given project. For instance, orientation of residential buildings only in north/south direction, so they end up being arranged in regimented grid pattern, which doesn’t allow for the variety and richness we expect in our residential layouts in the UK.
For instance, our innovative ‘Vertical Shikumen’ residential concept for Shanghai was declared ‘suitable for Singapore, but not for Shanghai”. The regulations of internal bathrooms and kitchens also determine the overall residential planning and character.
However, on the other side , in our Shimao Quarry hotel, the local Authority in Songjiang has been impressively flexible and has allowed, in this building, which as an ‘upside down’ skyscraper with no precedent, certain regulations (such as the seismic and structural codes and fire regulations) to be reinterpreted and justified from the first principles.
What incentives are in place to encourage foreign participation in the construction sector in China?
The major incentive has been the Government’s creation of so-called “Wholly Owned Foreign Investment” companies that enable foreign individuals to establish enterprises in China. This is the basis for operation of my studio in Shanghai.
The Chinese Government has recognised the value of learning from the experience of what they call “ Foreign Experts” and foreign participation is welcomed by clients, who seek experienced foreign designers to help produce more innovative and ‘international landmark’ buildings. It is a matter of ‘Face’ to have a foreign architect on board and having a ‘Name’ designer often helps to push the project through the Government approvals much quicker.
What mechanisms do you use when identifying risk and opportunities in the early development process of projects?
Important tool for identifying the risks and opportunities is a thorough analysis of all aspects of the design project. This is in fact a standard part of the design process, but is often skipped or simplified.
The most important factors in order to be able to come up with the ‘right’ solution are:
-Understanding the site and its physical (orientation, topography, access, existing landscape, environmental character, water etc.) and non-physical character. (cultural, historical, emotional context).
-Equally important is understanding the client’s requirements and thus, being able to translate them into physical volumes and plans that can then be arranged on the site.
-Finally, an important factor is understanding the local requirements, mainly the building densities, maximum heights , percentage of the green areas and other factors determining the size and location of the buildings.
All of these factors require detailed analysis, utilizing latest modeling and graphic software and internet research methods.
How has technology changed the architecture sector in recent years?
The design process in architecture has benefited from the ‘digital revolution’ by enabling complex organic shapes of building structures and façades to be designed and constructed, well beyond the capability of architects from only 20-30 years ago – from rectilinear simple shapes to complex curved buildings, that rely for both design and construction on automated computer controlled digital technology. Building and façade shapes produced by architects such as Hadid or UN Studio would have been unthinkable at the time when we designed buildings by drawing in ink on tracing paper on drawing boards with T squares.
In the heady days of the fast building boom here in China, there was a quest for the most unusual ‘Landmark’ shapes. Clients were competing for the most innovative building forms, enabled by the new technology and the examples of the resulting architecture, both good and bad, can be seen all over China. The CCTV building in Beijing, The Bird’s Nest Stadium, Beijing Airport terminal, Shenzhen Airport terminal, our Wuhan Pebble Towers and even the Shimao Wonderland Intercontinental Hotel in a Quarry are the examples of such architectural style.
Other developments are in the sustainability and ability for humans to interact with our buildings. Sustainability is a very important element of building design and, here in China, is now taken very seriously, with the US LEED system of evaluation and local Chinese 4-star system, being frequently used to produce buildings which will contribute to the environment, by saving energy, water and promoting biodiversity.
Interactivity in architecture is also enabled by the ‘digital revolution’ through incorporating smart controls which help to automate the building services, ranging from heating, ventilation, to lighting, security and communication and controlling more mechanical aspects of the external envelope of the building such as sun shading, external lighting and cleaning the façade.
Can you detail any current projects that you are working on? What are some of the key issues that you are facing in the process of assisting with them?
Shimao Wonderland Intercontinental
As mentioned, our most important project is The Shimao Wonderland Intercontinental, known as the Quarry Hotel. This project, which I designed in 2006, and has been ongoing for over 11 years now is a unique resort hotel situated in a disused ‘brownfield site’, 90m deep partially water filled quarry. The hotel, developed by Chinese developer Shimao, shall be operated as a 5-star resort by Intercontinental Hotel Group and when completed, will be their flagship project in China. The hotel which cascades down 90m rocky cliff face features 338 luxury guest rooms with number of them as duplex suites with the lower levels located under water, facing a large tropical aquarium. The central feature of the building is a vertical glass ‘waterfall’ atrium containing the observation lifts to take the guests to the lower levels. The hotel, with its unique location, is a first truly ‘underground’ structure and features a number of innovative and sustainable features. Obviously, such unusual location brings many technical challenges that needed to be overcome during the design and construction process.
Moganshan Jo Lalli Resort Hotel
Another one of our interesting project, currently under construction, is the Jo Lalli Resort Hotel in a beautiful mountainous region of Moganshan, near Hangzhou. Here the challenge has been to create a landmark building - that is the ‘visiting card’ for the operator, but at the same time, fits seamlessly into the outstanding natural environment without going against it. The inspiration for the form and materials has been directly the natural environment, utilizing local materials and building scale and massing that is compatible with the unspoiled beauty of the site itself. The hotel will feature large banqueting facility, restaurants and bars, in addition to 50 guestrooms.
Website: http://www.quarry-associates.com/
Entering the property market has become an increasingly daunting task for many young people in today’s economic climate. As a result, many have looked to government-backed help in the form of help-to-buy schemes and ISAs to turn the dream of joining the property ladder into a reality.
The required deposit can then be saved with the help of high-interest ISAs.
Though purchasing through help-to-buy has become an increasingly feasible option, not all areas of the UK have equal opportunity. Credit experts TotallyMoney have investigated Britain’s best and worst districts, cities and regions to lay down roots utilising help-to-buy schemes.
We researched a number of factors in each district across the UK to determine a ranking, including the number of equity loans utilised in each region (per capita), the number of help-to-buy ISA property completions and the average amount left to pay after government help (based on average property prices). The research uses government data to compare every district of the UK, including Scotland, Wales and Northern Ireland, to generate the complete ordered list of help-to-buy hotspots.
Desirable Districts
Considering the ranking factors mentioned above, of the 388 government-defined regions in the UK, the top help-to buy hotspots were revealed to be:
1. Central Bedfordshire – The Eastern district came up trumps, with a high level of equity loans (1710) per capita, and 245 properties successfully bought using a help-to-buy ISA. The district beat out all competitors as the best place to purchase a property utilising help-to-buy in the UK.
2. Chorley – The Lancashire market town came in second position with a low average property cost (£182,818) making entering the property ladder through help-to-buy schemes more achievable. The district also boasts the lowest average minimum deposit from the top 5 districts (£9,141) and relatively high number of equity loans given out by the government per capita making property ownership more achievable for residents.
3. Cheshire West and Cheshire – The second area in the North West to appear among the top scoring districts, Cheshire West and Cheshire scored particularly highly in terms of the number of help-to-buy ISA property completions per capita where it came out top in the whole of the UK, with 495 residents purchasing homes utilising this scheme.
Help-To-Buy Cities
The research also accounts for the most populated UK cities and which of those offer the best options for buyers looking to utilise help-to-buy options. Of these, the most buyer-friendly cities were revealed to be:
1. Wakefield – Located in a prime spot between Leeds and York, Wakefield tops the UK’s most populated cities for help-to-buy hotspots. The city has one of the highest levels of help-to-buy ISA property completions, helping 610 residents purchase new homes between December 2015 and March 2017.
2. Hull – In second place, and securing Yorkshire as a true hotspot hotshot, the port city scored highly in equity loans per capita. Hull’s low average property cost (£134,452) means that the 5% deposit required is the cheapest of any city at just £6,722.
3. Salford – Home to MediaCityUK, Salford sits in bronze position with 437 residents successfully purchasing homes utilising the help-to-buy ISAs in recent times and a good level of equity loans per capita boosting its ranking.
Joe Gardiner, Head of Brand and Communications at TotallyMoney, said: “Today, entering the property ladder is increasingly being seen as a pipedream for many young people. But with the introduction of government help-to-buy schemes, this dream can become a realistic option. For those thinking of utilising these schemes, knowing where in the UK is the most help-to-buy friendly, and whether your local area is one of these hotspots, is of particular importance to allow buyers to make a responsible financial decision.”
The full ranked map of the UK’s help-to-buy hotspots can be explored here, or the infographic covering the best help-to-buy cities can be viewed here.
(Source: TotallyMoney)
With plenty of change coming in 2018, here Emmanuel Lumineau and Thomas Schneider, Founders of BrickVest, delve deep into the future of real estate for the coming year, prospects of growth and challenges ahead.
2017 was a strong year for the real estate industry. Despite a number of external factors that could have easily affected market performance, low interest rates remained stable and demand in real estate investment products continued to rise.
Brexit
Brexit has clearly had an effect on the UK but we believe that across Europe, there remains strong deal flow levels and investment opportunities. Our recent research1 showed that one in three (33%) commercial real estate investors highlighted Germany as their preferred region to invest in. This is the first time that Germany has been chosen as the number one region to invest in and ahead of the UK which was selected by a quarter (27%).
The UK saw a drop from 31% in the last quarter and from 32% in the same Barometer 12 months ago. The Barometer also revealed that UK, French, German and US investors are now less favourable towards the UK since last year. 45% of UK, nearly a quarter (21%) of US, a fifth (19%) of French and 18% of German investors suggested they favour the UK this quarter, representing a decrease from last year across the board from 46%, 26%, 28% and 21% respectively.
Despite investors seemingly focussing away from the UK, there has been an abundance of international capital flowing into real estate, almost every major institutional investor globally has been increasing their portfolio allocation to real estate over the last five years mainly because of lack of alternatives.
Moreover the average risk appetite of BrickVest’s investors continues to rise to 52% from 49% last quarter and from 48% this time last year, meaning a sentiment shift from low to balanced risk
Interest rates
The Bank of England’s decision to raise interest rates in the UK in November was momentous for the economy and should signal the start of a series of gradual increases. The Bank decided that inflation is potentially getting out of control and the economy now requires higher borrowing costs. In contrast, the ECB’s decision to unwind its QE programme to €30 billion a month is a glowing endorsement of healthy Eurozone growth and falling unemployment, which will more than likely mean that interest rates will stay at historic lows until at least 2019 in order to help financial markets adjust.
Increasing interest rates has a direct impact on real estate. Higher interest rates and rising inflation make borrowing and construction more expensive for owners, which can have a constraining effect on the market but can also lead to an increase in property prices. In a low interest rate environment, European real estate yields will continue to look attractive and real estate serves as a good alternative to fixed income.
Value in 2018
We expect to see increasing demand for real estate in 2018. Indeed our research2 showed that two in five (40%) institutional investors plan to increase their allocation to European commercial real estate while 44% expect commercial property yields to increase in the next 12 months, just 22% believe they will decrease.
We believe that the best value can be found in real estate deals that are not too sensitive to price erosions. Investors should keep a close eye on the risk of high leverage and DSC ratios. We believe that the best investment options for 2018 will most likely be found in value-add real estate in combination with a conservative financing policy.
Investment strategy 2018
Given the fact that we believe demand will remain relatively high in 2018, one of the main challenges will be to find good deals.
Investors will have to find the right balance of higher leverage (due to continually low interest rates) and being able to handle potential price corrections in the event that the market cools off due to external factors such as Hard Brexit, escalation in the US vs. North Korea conflict, etc…
Institutional investors are investing in less liquid secondary and third level cities to achieve acceptable going-in cap rates (cap rates in major markets such as Paris are historically low). Investors will also be forced to look at less traditional investment products such as student housing, services apartments, and senior housing or industrial to get better returns. The overall risk of these investment is that they are in general less liquid and if the market bounces back, cap rates will also increase much faster than in downtown Paris.
In order to manage this problem, some institutional investors are now investing in real estate debt products so that they a.) have their exposure to real estate but b.) also have an achievable exit (i.e. when the loan maturity is reached). We think this might be smart strategy in 2018 given real estate prices are already very high and might fall in the long term (so no upside opportunity but also no real downside risk).
Sectors to watch
We continue to see the highest level of volatility from the office sector as many international firms put decisions on hold over their long-term office space requirements. Our research2 with institutional investors highlighted that more than a third (34%) believe the biggest real estate investment opportunities will be found in the office sector and the same number in the hotel & hospitality industry over the next 12 months.
Three in ten (31%) thought the industrial sector would present the biggest commercial real estate investment opportunities over the next 12 months while one in five (19%) cited the retail & leisure sector.
Mifid II
When implemented in January 2018, revisions to the EU’s Markets in Financial Instruments Directive (MiFID II) will radically change the regulation of EU securities and derivatives markets, and will significantly impact the investment management industry. It will have a significant impact for wealth and asset managers on profitability, product offer and their distribution across Europe, operating models and pricing and costs.
As a consequence, we expect MIFID II to widen the gap between global, infrastructure-based players, and local players. Crowdfunding platform may be affected by these changes.
General Data Protection Regulation (GDPR)
GDPR comes into force on 25 May 2018 and represents the biggest change in 25 years to how businesses process personal information. The directive replaces existing data protection laws and will significantly tighten data protection compliance regulation.
Like other industries, real estate companies will have to conduct a risk analysis of all processes relevant to data protection.
Yesterday saw Chancellor Phillip Hammond deliver his second budget. While the abolition of Stamp Duty, several tax revisions, freezes on several duties, increased investment in AI and Technology and a £3 billion investment into the NHS all came as welcome additions they could not prevent a sharp drop in the UK Growth Forecast following the budget.
So with many experts labelling it a ‘make or break’ moment for Hammond and a somewhat beleaguered Government, we spoke to the industry experts to see what the Autumn budget really means for the Financial Sector in a special extended Your Thoughts: Autumn Budget 2017
Choose your sector below or scroll through to read all the insight.
FinTech & Digital
UK Growth, Investment & Forex
Tax
Healthcare & Retail
Property & Real Estate
Abe Smith, CEO and Founder at Dealflo
London has been a world-leading financial centre since the 19th century, but low growth forecasts and the lack of clarity around Brexit are unsettling for businesses. The Chancellor has had to work hard to ensure that the UK remains an attractive place to invest and innovate post-Brexit. The new National Investment Fund means that even after Brexit, the UK will remain a hub for FinTech innovation and will attract fast-growing tech companies.
Niels Turfboer, Managing Director of UK & Benelux, Spotcap:
The FinTech industry is going from strength to strength and the UK Government can play an important part in enabling FinTechs to continue to thrive.
We therefore welcome Philip Hammond’s promise to invest over £500m in numerous technology initiatives, including artificial intelligence and regulatory innovation, as well as unlock over £20bn of new investment in UK scale-up businesses.
With this assurance, the government has shown a strong commitment to the FinTech sector, which will hopefully help tech companies all around the UK to flourish and grow.
World Economic Forum member Jane Zavalishina, CEO of Yandex Data Factory
The reality is that it is not the scientific development of AI that will be game-changing in the next few years, but instead the more prosaic, practical application of AI across many different sectors.
While AI is too often associated with self-driving cars and robots, the truth is the most significant AI applications that are of most significance to businesses, are actually the least visually exciting. AI that improves decision-making, optimises existing processes and delivers more accurate demand prediction will boost productivity far more powerfully than in all sectors.
But it’s not just productivity that will be significantly impacted – business revenue will also benefit. The beauty of AI lies in its ability to be applied with no capital investments – making it an affordable innovation for businesses to adopt. Unlike what is commonly thought, applying AI does not require infrastructure changes – in many processes cases we already have automated process control, so adding AI on top would require no investment at all. Instead, companies will see ROI within just a few months.
Martin Port, Founder and CEO BigChange:
We welcome this announcement and support for tech businesses from the Chancellor. Financial backing and stability is a huge hurdle facing all start-ups, so I am pleased to see the government pledge more than £20 billion of new investment. I just hope this funding is easy to access and readily available for those who need it, rather than being hidden among reams of red tape.
Leon Deakin, Partner in the technology team at Coffin Mew:
As a firm with a growing technology sector and client base in this area we are obviously delighted to see specific investment in the technology sector, particularly in AI and driverless vehicles.
Doom mongers have long been predicting that the UK and its tech hubs will be hit hard by Brexit and there have been numerous reports of rival cities within the EU which have sought to position themselves as alternative options. However, we are yet to see this materialise and incentives and commitments such as those announced by the Chancellor in these innovative but essential areas have to be great news for the economy, the sector and those who advise businesses in it.
Of course, creating the next unicorn is no easy task but a serious level of investment of the magnitude announced should at least ensure those businesses with promise have the best chance to scale up even if they don’t reach the $1billion level. Likewise, there is little point developing these new technologies if the infrastructure and support is then not there to utilise them properly
Matthew Adam, Chief Executive Officer of We Are Digital:
With the UK economy now expected to grow by 1.5% in 2017, a downgrade from the 2% forecast made in March, coupled with the challenges of Brexit, the need for the UK to sit at the forefront of digital skills and inclusion is more pressing than ever. We need to be able to grasp, with both hands, the digital opportunities that present themselves to us in order to make us a true global digital force.
The reality is that we simply cannot afford not to. Independent analysis shows that getting the UK online and understanding how to use digital tools could add between £63 billion - £92 billion to UK Plc’s annual GDP. Indeed, it is my belief that economies which focus strongly on getting its citizens online are also more productive.
The Chancellor has said that a new high-tech business is founded in the UK every hour, which he wants to increase to every half hour. It is imperative we support this growth through the announced £500m investment in artificial intelligence, to 5G and full-fibre broadband. However, to bridge the need for the 1.2 million new technical and digitally skilled people which are required by 2022, we must create and support retraining opportunities across society to make the UK truly digital.
Technology improvements are causing widespread changes in every market and the public sector should be no exception, especially as it often faces the biggest social problems to solve. I’m glad the government is waking up to the fact that the latest technological advances don’t need to be assigned only to the private sector, but can do a lot of good to the community at large. We know from our direct work with the Home Office that every government and council department is moving its processes online. Whether it’s chatbots to automate processes, or solving how people engage with Universal Credit, there is so much we can do here with ‘Gov -tech’
I therefore welcome the Chancellor’s digital announcements today and consider this budget as not so much a leap in the right digital direction, but more a necessary conservative step.
Owain Walters, CEO of Frontierpay:
The Chancellor’s efforts to win younger voters from Labour by abolishing stamp relief for first-time buyers on homes up to £300,000, and on the first £300,000 of properties up to £500,000, come as no surprise. The potential for such an announcement has been a hot media topic in recent weeks and as such, we don’t expect to see any significant impact on the value of the pound.
“In the wake of this Budget, any real movement from the pound will be caused either by developments in the Brexit negotiations or the potential for a further interest rate rise. I would therefore advise any businesses that want to stay on top of turbulence in the currency markets to keep a close eye on inflation data.
Markus Kuger, Senior Economist, Dun & Bradstreet
It’s not surprising that the Chancellor opened this year’s statement with a focus on Brexit; even as businesses absorb the implications of the Budget, they have a close eye to the ongoing negotiations and any likely trade agreement, which is likely to profoundly impact their future. The government’s move to provide a £3bn fund in the event of a no-deal outcome is designed to increase business confidence. In the meantime the business environment remains challenging, and Dun & Bradstreet forecasts that real GDP growth in 2018 will slow to 1.3% (from 1.8% in 2016). Businesses should continue to follow the Brexit negotiations closely and consider that operating conditions could change dramatically over the next 18 months as the Brexit settlement is clarified.”
Damian Kimmelman, CEO of Duedil
We welcome the government’s announcement that the Enterprise Investment Schemes’ (EIS) investment limit, for knowledge intensive scale-ups has been doubled.
The EIS has been great for attracting investment for small businesses, however we need to ensure investment through the scheme is not being used for capital preservation purposes, but instead to encourage the growth of companies.
The key to increasing investment in ‘higher risk’ growth companies through the EIS scheme, is to eliminate information friction. With more data, investors can price risk effectively, so they can lend to support the small businesses forming the backbone of the economy, driving growth, and creating jobs.
Lee Wild, Head of Equity Strategy at Interactive Investor:
This budget was always going to be especially tricky for the chancellor. Hitting fiscal targets amid wide divisions over Brexit, while also spending more on populist policies to distract voters from Conservative party infighting and dysfunctional cabinet, was a big ask. Hammond wasn’t fibbing when he promised a balanced budget. Once tax giveaways, downgrades to growth forecasts, billions more for the NHS and the rest are put through the mincer, both the FTSE 100 and sterling are unchanged.
Given Britain’s housing crisis was an obvious target for the chancellor, he really needed something substantial to make his aim of 300,000 new homes built every year anything more than a pipe dream. Committing to at least £44 billion of capital funding, loans and guarantees to support the housing market will go a long way to achieving the chancellor’s ambitious target. Abolishing stamp duty for first-time buyer purchases up to £300,000 is a tiny saving, however, and buyers, especially in London, will still require a huge deposit to get a foot on the housing ladder.
The market hung on Hammond’s every word, causing a comical yo-yo effect as the chancellor slowly revealed his strategy. A threat to use compulsory purchase powers where builders are believed to be holding land for commercial reasons, could cause sleepless nights.
Overall, Hammond’s ideas are sound, but probably not enough of a catalyst to get sector share prices rising significantly near-term, given mixed results in the run-up to this budget.
Mihir Kapadia – CEO and Founder of Sun Global Investments:
The Autumn budget statement from Chancellor Phillip Hammond was as expected, with a few pleasant surprises. While Mr Hammond set out his policy proposals with a "vision for post-Brexit Britain", he also acknowledged that his Budget was "about much more than Brexit". With the Conservatives struggling in the polls, the Chancellor was under pressure to regain support for his party, which is currently in a fragile coalition.
The expected announcements include the decision to abolish stamp duty for first time buyers on properties up to £300,000, addressing the housing crisis, an immediate injection of £3.75 billion into the NHS, investments into infrastructure (transport and network), freezing duty on fuel, alcohol and air travel, and finally a Brexit contingency budget of £3 billion.
While today’s budget was populist and aimed at the electorate, it has to be noted that the Office for Budget Responsibility (OBR) sharply downgraded both Britain's productivity and growth forecasts, as well as its business investment forecasts, meaning the UK's finances look set to worsen over the coming years. This does not factor the possibility of a Brexit-related downturn or a wider global recession, which has already been seen as overdue by many forecasters.
We expect the abolition of stamp duty for first time buyers on properties up to £300,000 will draw extra attention and headlines from much of today’s announcements. It is vital that we acknowledge the warnings from the Office for Budget Responsibility.
Angus Dent, CEO, ArchOver:
The UK’s productivity growth continues to decrease and we’re looking in the wrong place for answers. It’s not just a case of everyone working a bit harder. Investment in public infrastructure and fiscal policy will be the defining factors that help the UK catch up, while real growth will come from our SME sector.
Britain is known as a nation of entrepreneurs. Yet we’re in real danger of not giving our SMEs the support they need to thrive. We need a bottom-up approach where small businesses with bright ideas have access to the finance and advice they need to grow. Only then will we have the firm economic foundation we need to build our productivity post-Brexit.
The expansion of the National Investment Fund in today’s Budget is a good start, but too many SMEs still have to pay their way with personal savings or put their houses on the line as security if they turn to the big banks for help.
We need to inspire a new culture. We know there is an army of willing investors out there who want to support British business - lending across P2P platforms is on course to rise by 20 per cent by the end of this year according to data from 4thWay.
However, we need to raise awareness among SMEs of the different options available to help them finance their growth. SMEs need to take control of their own destiny. With the right finance in place, they can drive the whole country forward to new heights of productivity. We can’t just leave it to government – small businesses must be given the power and the cash to fulfil their potential.
Paul Falvey, tax partner at BDO:
It’s clear that the headline grabbing news revolved around the Chancellor’s decision to abolish stamp duty for first time buyers on properties purchased up to 300,000, at a cost of £600m a year to the tax man. Whilst this is important for people getting on the property ladder, there were other key assertions.
Firstly, HMRC will start to charge more tax on royalties relating to UK sales when those royalties are paid to a low tax jurisdiction. Although this is only set to raise approximately £200m a year, it sets a precedent that tax avoidance will continue to be on the governments agenda. Implementing the OECD policies is a tactic we expected.
Furthermore, companies will pay additional tax on the increase in value of their capital assets from January 2018. The expected abolition of indexation allowance will mean that, despite falling tax rates, companies will be taxed on higher profits. By 2022/2023 this is expected to raise over £525m.
62% of the businesses we polled before the Budget said they will be willing to pay more taxes in return for a simpler system. Yet, once again, the government has done nothing to tackle the issue of tax complexity. It is a huge obstacle to growth and businesses will be disappointed that there was no commitment to setting out a coherent tax strategy.
Craig Harman is a Tax Specialist at Perrys Chartered Accountants:
Although it was widely anticipated beforehand, the only real rabbit out of the hat moment for the Chancellor was confirming the abolishment of stamp duty for first time buyers. This equates to quite a generous tax incentive for those able to benefit resulting in a £5,000 saving on a £300,000 property purchase.
The Chancellor has also stood by his previous promises, by raising the personal allowance to £11,850, and the higher rate threshold to £43,650. This is in line with the commitment to raise them to £12,500 and £50,000 respectively by the end of parliament.
Small business owners will be pleased to note that speculation regarding a decrease in the VAT registration threshold did not come to fruition. It was anticipated the Chancellor would look to bring the UK in line with other EU countries, however this will be consulted on instead and may result in changes over the next couple of years. Any decrease in the threshold could place a significant tax and compliance burden on the smallest businesses.
Ed Molyneux, CEO and co-founder of FreeAgent
I don’t believe that this is a particularly positive Budget for the micro-business sector. Rather than actually offering real support or meaningful legislation to people running their own businesses in Britain, the Chancellor has simply kept the status quo.
While it’s pleasing to see that the VAT threshold has not been lowered - which would have added a significant new administrative burden to millions of UK business owners - this is hardly cause for celebration. Neither is the exemption of ‘white van men’ from diesel charges, which is the very least that the Government could have done to protect the country’s army of self-employed tradespeople.
It’s also disappointing that there are still a number of issues including digital tax that have not been expanded in this Budget. I would have preferred to see the Chancellor provide clarity on those issues, as well as introducing new legislation to curb the culture of late payment that is plaguing the micro-business sector and further simplifying National Insurance, VAT and other business taxes.
Rob Marchant, Partner, Crowe Clark Whitehill
The Chancellor announced that the VAT registration threshold will not be changed for the next two years while a review is carried out of the implications of changing this (either up or down).
Having a high threshold is often regarded as creating a ‘cliff edge’ for businesses that grow to the point of crossing that line. However, keeping a significant number of small businesses away from the obligations of being VAT registered allows them to focus on running their operations without additional worry. Many small businesses will welcome the retention of the threshold.
The consultation should look at ways to help smooth the effect of the “cliff edge”, while continuing to reduce administrative obligations for small businesses.
Jane Mackay, Head of Tax, Crowe Clark Whitehill
The tax avoidance debate has centred around large multinationals and their corporate tax bills. High profile cases have eroded public trust in how we tax companies. By maintaining the UK’s low corporate tax rate, currently 19%, and reducing it to 17% from 2020, the Chancellor accepts that corporate tax is only of limited relevance in our UK economy. It accounted for around just 7% of UK tax revenues last year.
The Budget announces changes to extend the scope of UK withholding taxes to tax royalty payments in connection with UK sales, even if there is no UK taxable presence. There will be computational and reporting challenges, but this measure may pacify those who feel the UK is not getting enough tax from international digital corporates which generate substantial sales revenues from the UK
Hitesh Dodhi,Superintendent Pharmacist at PharmacyOutlet.co.uk
With a focus on Brexit, housing and investment into digital infrastructure, it was disappointing to see a many healthcare issues overlooked in today’s Budget. The additional £2.8 billion of funding for the NHS in 2018-19 is a undoubtedly a step in the right direction, but it falls short of the extra £4 billion NHS chief executive Simon Stevens says the organisation requires.
What’s more, the Budget lacked substance and specifics; it did little to progress digitalisation in the healthcare sector – an absolute must – while the opportunity to promote pharmacy to play a greater role in delivering front-line services to alleviate the burden on GPs and hospitals was also overlooked. These are both items that should feature prominently on the Government’s health agenda, but the Chancellor did little to address either in today’s announcement.
Jeremy Cooper, Head of Retail Crowe Clark Whitehill:
There is little in this Budget to bring cheer to the struggling retail sector.
The changes to bring future increases in business rates into line with the Consumer Price Index in 2018, two years earlier than previously proposed, is welcome, but is it enough for hard-stretched shop owners?
The National Living Wage will increase for workers of all ages, including apprentices, which is excellent news for lower paid employees. Retailers would not begrudge them this increase, but retail tends to have a higher proportion of lower paid employees and the impact on store profitability and hurdle rates for new stores should not be underestimated.
There is more positive news for DIY, home furnishings and related retailers in the form of the abolition of Stamp Duty Land Tax (SDLT) for first time house buyers. This should help stimulate the first time buyer market and free up the wider housing market which in turn should boost retail sales for DIY and home furnishings retailers from buyers decorating and furnishing their new homes.
Paresh Raja, CEO of bridging specialist MFS
After an underwhelming Spring Budget that completely overlooked the property market, this time around the Chancellor has at least announced some reforms that will benefit homebuyers. While stamp duty has been cut for first-time homebuyers, the amount of money this will save prospective buyers is in reality still limited – the average first-time buyer spends £200,000 on a property; abolishing stamp duty for them will save them just £1,500.
Importantly, homeowners looking to upgrade to another property still face the heavy financial burden of stamp duty, which will ultimately deter them from moving house. I fear this will have significant implications in the longer term, decreasing the number of people moving from their first property purchase, and thereby reducing the number of properties available for first-time homebuyers, and reducing movement in the market as a whole.
Fareed Nabir, CEO and founder of LetBritain
“Having acknowledged the growing number of Brits stuck in rental accommodation, it’s pleasing to see the Government deliver a Budget heavily geared towards the lettings market. With 7.2 million households likely to be in the rental market by 2025, the Chancellor has seized the opportunity to continue with the recent wave of reforms by offering tax incentives for landlords guaranteeing tenancies of at least 12 months. This should hopefully have a trickle-down effect on rental prices, offering more financial manoeuvrability for tenants saving to buy their own house – something the Chancellor has made easier – while also providing additional security for renters.”
Richard Godmon, tax partner at Menzies LLP
We should to see house price increases almost immediately on the back of this announcement. His commitment to building an extra 300,000 homes a year is not going to happen until 2020s, so this measure could lead to market overheating in the meantime.
The removal of indexation allowance will come as a further blow to buy-to-let landlords, many of whom have been transferring their portfolios into companies since interest the restriction rules were introduced. This will mean paying more tax on the future sale of properties.
Now that all sales of UK investment property by non-residents after April 2019 will be subject to UK tax, it effectively means one of the incentives to invest in UK property by non-residents has been removed.
Jason Harris-Cohen, founder of Open Property Group
There was a lot of speculation before the Budget that the Chancellor would reduce or temporarily suspend stamp duty for first-time buyers, in a bid to help young people get on the property ladder. What we got was the complete abolishment of the tax on first-time house purchases of up to £300,000, effective from today, and in London and other expensive areas, the first £300,000 of the cost of a £500,000 purchase by first-time buyers will be exempt from stamp duty. This is arguably the biggest talking point of today’s announcement and as the Chancellor says will go a long was to "reviving the dream of home ownership".
It was equally refreshing to hear that the Government is committed to increasing the housing supply by boosting construction skills and they envisage building 300,000 net additional homes a year on average by the mid-2020s. However, I was surprised that local authorities will be able to charge 100% premium on council tax on empty properties, though I appreciate that this is a further stimulus to free up properties sitting empty and bring them back to the open market to increase supply. Conversely this could result in falling house prices if there is further supply and lower demand following a period of political and economic uncertainty.
What was disappointing, however, was the absence of any mention to reverse the stamp duty change that were introduced in 2016 for buy-to-let and second homes, which is currently deterring people from investing in the private rented sector. The longer it is around the more of a knock on effect it will have on the growing homelessness crisis, a problem the Government plans to eliminate by 2027 - a bold statement from Mr Hammond!
We’d love to hear more of Your Thoughts on Phillip Hammond’s Autumn Budget. Will it benefit Britain and will the reduced growth forecasts have an impact? Let us know by commenting below.
Here Charu Lahiri, Investment Manager at Heartwood Investment Management, discusses the current challenges at the heart of online retailing and the overall effect click to click has had on commercial property markets.
Online retailing is an evolving landscape that is leading to structural shifts in the commercial property market across the globe. Here in the UK, internet sales now make up 16% of total retail sales compared to less than 4% a decade ago, according to the Office of National Statistics. This trend is expected to grow further; indeed, the average weekly value of internet sales totalled more than £1 billion in September, a 14% increase year-on-year. In fact, the UK leads the rest of Europe in total online sales volume.
Inevitably as retail purchasing trends are changing, demand for traditional bricks-and-mortar retail is falling. Mid-market UK based retailers in the fashion industry are reported to be reducing the number of stores that they plan to open, as well as considering closures at lease expiry. Furniture retailers’ expansion plans have also been curtailed in the last couple of years, with High Street names such as John Lewis and Next having ceased their activity in acquiring stores in the pure homewares market.
Instead, retailers are adapting by restructuring supply chains and, in turn, requiring warehouse and logistics facilities for multi-level purposes. These include e-fulfilment warehouses to prepare and ship orders; picking and sorting; returns; and last mile delivery centres. According to Prologis, every €1 billion spent online requires an additional 775,000 square feet of warehouse space.
Supply constraints and pent-up demand
Supply constraints mean that the warehouse/logistics sector is struggling to keep up with demand, which reached a new peak at the start of 2017 [Source: JLL]. For example, between 2012 and 2016, when e-commerce was expanding, just 13.65m square feet of warehouses was delivered to the market, compared to 40.47m square feet between 2005 and 2009 [Source: Kevin Mofid, Savills].
Constrained supply has been attributed to the lack of developable land, given that the UK market is noted for having high barriers to entry. This has resulted in a shortage of ‘grade A’ prime property: in the fourth quarter of 2016, grade A available supply fell 23% and a further 3.3% during the first quarter of 2017. In addition, speculative completions during 2017 are expected to be lower than historical levels. In part, this decline is due to limited development finance post the Brexit vote, but importantly some occupiers are shifting to purpose-built facilities as much of the existing stock is considered insufficient for e-commerce needs.
Pressure on prime rents
These trends are resulting in high occupancy rates, low vacancy rates and rising pressure on prime rents. According to researchers Cushman & Wakefield, annual prime rental growth ranged from 3.1% in the West Midlands to 13% in Yorkshire in the first quarter of 2017. The South East, East and Yorkshire are seeing the strongest increase in e-commerce demand and rental growth in those areas is above 10% per annum. These supportive conditions offer stable and long-term income opportunities for investors, notwithstanding that the risk premium versus UK gilt yields is compressing.
Overall, the outlook remains constructive for rental growth prospects in the logistics and warehouse sector, due to the underpinnings of strong supply and demand dynamics. Total returns in the industrial and logistics sector should outperform those for office and retail over the next few years. That being said, the UK property cycle is maturing and investors may have to expect lower returns compared with recent history, despite strong fundamentals.
We have for some time advocated an investment approach that is targeted to sectoral trends, but also one that can seek income and return from specific regions. Over recent months we have chosen to invest in UK regions and cities outside of the South East and London, where capital values and yields potentially offer more attractive value. We believe that there are opportunities to be exploited in UK commercial property, but they are now appearing in more specific areas of the market which are undergoing structural change.
Property prices across the world are soaring, with figures in Sydney, Australia reaching new heights as the median house price hits an eye-watering $1.18 million. But, how much house could the average individual buy in different cities across the world?
The current climate in the property sector is a bleak one; house prices are climbing to the highest prices ever recorded, with Australian house price growth surging to a seven-year high. When calculating how much Australian’s can afford, the average salary of 80,278 AUD, a typical loan-to-income ratio of 4.5 times the salary and the average price per foot of property show that 509 sq ft is the biggest size of property average Aussie’s can afford in Sydney. But, with the opportunity to move to bigger and better properties in far-flung cities across the world, would you up-and-go for extra square footage?
Shuffle the interactive piece to view highest to lowest sq ft, lowest to high sq ft and all of the cities included sorted A-Z.
These are the cities where Aussie’s can buy the biggest properties:
Interestingly, Adelaide takes the 9th spot as the city where Aussie’s can afford the biggest properties with their salary. Other Australian cities featured on the ‘How much can you buy?’ list includes Perth, who take the 14th spot with 838 sq ft, Brisbane at 15th with 727 sq ft and Melbourne, just a few places behind at 18th with 608 sq ft.
These are the cities where the smallest properties are that the average Aussie salary, of 80,278 AUD, can afford to purchase:
Monaco is the most expensive city in the world for Australian’s to buy a home, with most only being able to afford a measly 67 sq ft of property. It may come as a surprise that London, UK takes the second spot as the most expensive city on the list to buy a property with the average Australian only being able to afford 117 sq ft of property in the English capital. Other heavily populated cities make up the rest of the top 5 list and include Hong Kong, Paris and New York.
Just how big are we talking?
To put square footage into perspective, a standard double bed is 28.1 sq ft. This means that in Monaco you can afford a property the equivalent size of 2.3 double beds on the average Australian salary, crazy right? If we apply the same logic to London, that’s just over four double-beds-worth of property on the same salary.
At the other end of the scale, to purchase a 4,883 sq ft property in Cairo, Egypt would be equivalent of 173.8 double beds.
(Source: Assured Removalists)
