Industry Roundup – August 2019

In our August industry roundup, we examine the trends that are shaping the property landscape and the outlook for the residential market leading into September.

Spotlight on High-Speed 2 (HS2)

As you’d expect, the announcement from the Government that they are reviewing how and whether to proceed with the HS2 line between Birmingham and London may have raised some concerns. However, it’s important to remember that the worst-case scenario of a cancellation is unlikely to undo what HS2 has already kickstarted.

“Birmingham’s economy, population and regeneration have thrived in the years since HS2 was announced. Less due to the reality of speedier connections and widened access that the high-speed line will introduce, but more based on how HS2 has actually highlighted all the benefits that Birmingham as a city has to offer said Damien Siviter, SevenCapital Executive Director.

“None of this will go away if HS2 doesn’t come to fruition. Birmingham has now embarked on its own exciting journey and the end is nowhere near in sight.”

Knight Frank Birmingham Managing Partner, Ashley Hudson, echoed these sentiments: “HS2 will of course be a benefit to Birmingham, as it will improve links to the capital and tempt new occupiers to the Midlands but is it essential? Probably not.

“Investors are attracted to the positive occupational dynamic of limited supply and strong occupier demand, as well as the huge inward investment in projects such as Grand Central, the tram, the Library, Centenary Square and Paradise.”

International Investors Identify UK Opportunity

Hong Kong investors are increasingly looking to the UK property market for their next investment, as the Hong Kong dollar hits a two-year high and political protests continue to impact the local market. Jonathan O’Regan, direct for central London investment at Savills said:

“We are definitely seeing a recent upswing in investor interest from Hong Kong, which could be attributed to the political situation there. Savvy investors are seeing cheap sterling (amid Brexit) as being the ideal opportunity to invest into core assets.”

Similarly, investors from the UAE are identifying UK investments to bolster their portfolios. The largest proportion of mortgage enquiries for the UK in 2019 so far have originated from the UAE. As domestic buyers delay their investments, international investors have been given a clear pathway to success. 

Property Sales Drop to Lowest Point Since 2009

Led by a declining London market, residential and commercial sales volumes have fallen since June 2016 to their lowest point since 2009. While prices are still rising on average, growth has steadily slowed, impacted by the Brexit delay in the first half of 2019. With a new scheduled date of October 31st, uncertainty continues to affect the market and has subdued the prospects of a nationwide short-term increase in demand, though certain key destinations are still seeing positive increases.

This weakness in the UK has been reflected in international market performance, as other countries face their own political instability. Take Hong Kong for example, which has experienced a 34% year-on-year drop in office investment volumes after weeks of political protests. 

Mark Ridley, the chief executive of Savills, explains: “In many markets, particularly the UK and Hong Kong, political and economic uncertainty has considerably reduced the volume of real estate trading activity in recent months although occupier demand remains robust.”

Affordability Starts to Improve

The latest Hometrack UK report has shown that affordability across southern England is beginning to improve. Oxford and Cambridge have experienced a similar situation to London where affordability levels have fallen back to the 2015 benchmarks, a modest improvement despite prices still remaining high. 

It’s expected the improvements to affordability will be spread out over a longer period of time – as a scarcity of housing reduces pressure on prices. There’s also plenty of room for price growth in affordable cities, driven by more job opportunities and low mortgage rates.

Manchester Sees Spike in Demand

Manchester experienced a 117% increase in people moving to the city as of July 2019, compared to the same period during 2018. With more international business recognising the opportunities Manchester can provide, young professionals are also being priced out of the South and relocating to the Midlands or the North. 

According to Louise Emmett, head of North West residential agency: “Manchester has so much to offer – it’s teeming with culture, sport, world-class food and drink scene and a booming night-time economy… paired with the area’s impressive business credentials… it’s hugely appealing to younger generations that want the big city feel but can’t afford or access London.”

Manchester also witnessed a 103% increase in lets agreed during 2019 compared to the year before, following on from increases to rental and house prices – growth usually associated with a healthy local economy. 

Roundup

The run-up to October and the Brexit decision remains crucial. The ‘summer relief rally’ that Rightmove predicted – a bounceback in prices post-Brexit delay – seems less likely to impact the wider country now. Instead we’re seeing certain key cities experiencing a bounceback, clearly demonstrated by Manchester’s spike in movers looking to take advantage of emerging opportunities. Similarly, areas in Birmingham and the London Commuter Belt are seeing steady price growth, buoyed by London’s continued decline.

UK property continues to be popular with international investors who are identifying opportunities outside of more turbulent domestic markets. Despite the HS2 line – a major draw for many investors – coming under review, there’s still unprecedented occupier demand and an exciting pipeline attracting overseas investment.