Over-priced market, Government policy and garden cities

Last week I talked about prime assets being over-priced. This week, following a number of discussions with intermediaries and valuers, I think it may not be just prime assets but a market. Could this be the year the market simply becomes overvalued. It is an interesting thought while sat having a morning coffee and realising that I'm now 32.

So what is driving this? Well remember that for a number of years now interest rates have been low and despite some indications the MPC may increase the rate, they haven’t nor is there an expectation they will for the rest of the year. Frankly I would welcome a little increase if not simply to get a better rate on my savings.

As well as record low interest rates and a low inflation remember 2014, according to DTZ, was a pretty busy year with £54.9 billion of transactions, with growth driven by regional activity. Last year investment outside of London increased from £25.4bn in 2013 to £34.4bn in 2014, while investment within the capital dropped slightly from £22.3bn to £20.5bn. Could this though have the same impact as London – increased prices, increased rents and pressure on the little guy.

This demand isn’t simply going to vanish and there have already been a few deals in 2015 that show the appetite for investment is still present, all I dare say is Qatar and Songbird! Confidence in occupational markets is a key element and whilst we are seeing an increase in development of prime offices it won’t hurt confidence.

DTZ'  office investor scorecard results tracks the performance and attractiveness of the major cities' property markets. Leeds sits in mid-table, among a group of very similar cities, while London's rating is distorted by the volume of transactions.

So why as investor would you invest outside of London? Well for starters you get a higher yield and with a limited supply you could argue a more certain income stream. It will be interesting to see how new developments in Sheffield and Leeds attract investment over the coming months.

Without showing my allegiance to one particular political party, I did for once think Vince Cable had something good to say. We are a market that currently funds people to buy houses but not for people to build houses. This is odd in world where we have a housing shortage. The plan would be to borrow more to invest in houses, specifically more garden citites. To me though this just seems to benefit the South, never hear about garden cities near Pontefract do we! Maybe a small fund available to the smaller niche developers – the large scale developers don’t need too much help, certainly if you’ve read the latest management statements, while the small developer needs a little helping hand.

The investment in not only housing (increasing the current houses per year to at least 300,000) but infrastructure is a given. Over the coming months no doubt promises will be made by politicians but at the end of it we just want delivery. The economy would certainly welcome some large scale projects such as improved rail connections in Yorkshire.

Feel free to contact me 0113 288 2276 or lee.a.wilkinson@uk.pwc.com if you wish to discuss this blog or anything relevant to property and construction.

Enjoy the weekend

Lee

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