House prices in the North on the up

It has certainly been an interesting week with two things keeping my attention – a spectacular fall from Madonna at the Brits and the results of Persimmon. What both tell you are that when you get knocked down get back up again. Persimmon is a prime example of a business well positioned in a market that is growing.

Since the downturn in 2009, a lot of discussion has been around the growth of the house prices in the southern part of England and not just London. This has seen growth of approximately 27% but the point has come where this growth is likely to fizzle out. In the North of England, although there has been some recovery it is marginal in comparison – but alas it looks like the tides are changing with the likes of Sheffield and Leeds leading the way over the next 12 months.
But why is this? Well in contrast to the South, the North only really hit the bottom a couple of years ago, so while the South recovered quicker the North is now leading the race and even in some areas have growth exceeding London.

It does make me wonder though if this is all sustainable. I remember getting my first mortgage and a nervous man at Halifax allowed us a mortgage at 4 times our annual salary – now in some areas today the average house price is 12 times average earnings with a national average of 6.3.

If you step back and think about it, the North ultimately has cheaper houses and is therefore more affordable so as people seek financing will be swayed to these areas – and therefore increasing prices – one big vicious circle!

It then comes back around to the number of houses available. Supply and demand has always shown that where there is demand, the supply will be able to increase the cost. Britain has a chronic shortage of housing stock but in 2014 less than half the required number of homes was actually built (Department for Communities and Local Government shows 118,770 against a target of 250,000). This simply is putting pressure on the supply.

So what should you do as a potential buyer, like always shop around. I recently had a conversation with a seller who was amazed at how much the price had been chipped away on their property for sale, only when he told me that they had informed the potential buyer how desperate they were to move did it click – if you are selling be careful what you say! Buyers are in a good position (if you can find the right property). At present Banks and other lenders are frantically undercutting each other to get your business, though they are still not lending silly amounts – which does mean you need to carefully consider deposits, home buy or the location of where you settle.

So those people in the North that are thinking of selling should be cautious, with house prices forecast to increase you may want to hold out a little longer. For those looking to buy, now is your time but be wary about the price you are paying – getting a second opinion!

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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Growth, growth but more houses needed

Optimism is something that takes time to really set in. It was predicted that construction output in 2014 would see a 1% increase with a 2.1% increase in 2015 for Europe’s 19 largest economies. This would be a welcome bit of news considering how the industry had contracted by 21% over the past few years with the global economic turmoil.

2015 however is going to bring some challenges – the continuing uncertainty over Greece and the wider European risk of sliding into deflation. This certainly does knock the optimism levels. Deflation in Europe will lead to one thing – further margin squeeze in the industry. Now this is an industry still dealing with legacy contracts (with low margins), thriftier budget holders (therefore low margins) and dealing with falling inflation will lead certain customers to put of spending decisions. All signs point to tough times!

So what to do? Well like most businesses if your market is failing you then either you adapt in your local market or seek out further markets to complement existing ones. What I think we will see over the coming months is larger construction businesses venturing into new territories and given the growth in the UK it is likely to be us that see a few new signs on sites. Good news yes? New jobs for people but is there capacity in the market place?

One area where construction may well benefit from overseas is to address the chronic lack of properties coming to market, which ultimately is pushing up the average house price. Recent numbers show that the average asking price in the UK is £279,004 (Jan-15) with the regions picking up the pace. The figure is a little lower for a new buyer at £167,107 (Jan-15), but even with housing initiatives this still leaves a chunky deposit for a new buyer.

The good news for anyone buying a home is the record low mortgage rates, partly helped by the continued low base rate of 0.5 per cent. How long will this last though? It is widely known that the base rate is expected to increase over the coming year and it will be interesting to see how banks adjust mortgage rates to reflect this. Certainly a good time to get locked into to a low rate fixed deal.

Overall the market is growing and it will see new entrants looking to join the band wagon and this needs pushing into housing to help control growing house prices

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.

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Lee

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Housing is high on the agenda

It is no surprise that we sit here in January 2015 with the “pledges” coming out from the politicans. Reading the proposal set out by the Labour party to increase number of units to 200,000 a year (feels still to low but it’s a start) leaves you only feeling how predictable it all is. There is some hope in the proposal in that to achieve this (partly) they will provide small housebuilders finance – as lets be honest it is the only way the targets can be met. The national housebuilders are doing pretty well at the moment and yet we are still way off the target number of houses needed each year. The benefit of the smaller housebuilder is that they can develop in smaller communities and yes these 10-20 size plots do soon tot up.

An underlying problem is skills – there is a shortage, albeit things seem to moving in the right direction. There has been research released by RICS stating that by 2019 Yorkshire construction will be impacted by a skills shortage. Sounds realistic, I know at least 20 contractors, all of whom live in Yorkshire but work in London as it pays better. But if the shortage is leaving local businesses turning down work (which they are) then something needs to change. Is paying them more the answer?

When you last moved jobs, were you counter-offered
INDUSTRY	PROPORTION COUNTER-OFFERED LAST TIME THEY MOVED JOBS
Construction & Engineering	21%
Technology and IT	21%
Finance	11%
Health & Social are	7%
Education	3%
UK Average	8%
	Source: Randstad

 Well research above shows it is precisely what is happening – does make you wonder how many people are just looking elsewhere in a hope to get a pay rise, or is that just the cynic in me. Is this an admission of failure though. If you wanted to keep them, why not reward them – financially and in other ways – before they look for a job. Are employers taking advantage?

At the moment the industry is faced with delivering low margin jobs agreed during the downturn and as a result as material costs increase and margins remain low they are under pressure to keep labour costs down, but they can’t afford to lose you – pay them modestly and hope they stay, but if they look elsewhere offer them more. Just remember though that news travels in the construction industry quicker than [insert your own analogy]. It will not be long before a 3% wide scale payrise, which is cheap and effective, is a better thought than 15% one off hikes.

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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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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Are prime assets over-priced

Well last week completely got away with me so here’s my latest (slightly late) blog.

As the temperature in the UK crashes and white snow dashes the hills around I have had time to think about the market more in general. It is an interesting time – a lot of focus is on the cost of finance, the will it or won’t it debate. There is a lot of momentum behind the MPC increasing interest rates but I do still feel sceptical that 2015 is the right time.

Indeed the UK’s economy grew by 2.6% last year, the fastest pace since 2007 and up from 1.7% in 2013, however the figures from the ONS show that the economy only grew by 0.5% in Q4 2014, down from 0.7% - it all just feels a little bit too early to start rocking the boat.

Europe’s real estate industry expects to be busier and more profitable in 2015, despite concerns over weak fundamentals and economic conditions. The five leading cities for investment prospects in 2015 are a mix of German stalwarts and recovery plays: Berlin is top, followed by Dublin, Madrid, Hamburg and, in a remarkable revival, Athens. Dublin’s ranking and Athens’ rise reflect the opportunistic streak that runs through Europe. Madrid’s ranking, too, reflects a capital surge into Spain that started in 2013 and shows no sign of easing up. If anything, there are signs of this activity spreading across southern Europe.

All the revived interest in investing in Europe and forecast growth is driving up the price – coupled with the shortage of acquisition opportunities – simply assets are becoming over-priced. In a recent survey by PwC this was highlighted with 48% agreeing that prime assets are over-priced.

This is prime assets, try being the secondary asset. Access to capital in the regions is proving a big challenge for bringing forward much needed development. If I think around Leeds you see a number of stalled developments and from ongoing conversations in the market it does come down to finance. There is some hope with a number of recent developments being constructed speculatively. You move down to M1 and come to Doncaster and Sheffield, both of which are behind there northern neighbour but again you are seeing inward investment – recently a Sheffield development was kick started with Chinese finance.

Potentially it comes down to some damn good marketing but let’s be honest London is the capital but it’s not the centre of everything. The North particularly have so much to offer in terms of excellence and therefore marketing it correctly should lead to investment – okay that may mean assets become over-priced but let’s worry about that later. You look at the Advanced Manufacturing Park and Sheffield Business Park and see the hub being created in Sheffield.

We started planning our local dinner for April this week and it always excites me when discussing potential speakers – we’ve got a really good one nearly confirmed now. If you want to be invited to drop me a note, they tend to be very informal dinners with very good conversations on the market place.

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.

Hope you enjoyed the weekend

Lee

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The UK economy is off the sick bed

The UK economy is off the sick bed and finally growing strongly. Althought the numbers are still being tripled checked, growth last year is around 3% (compared to 1.7% in 2013). 2014 was the first year in a few that construction felt like it had turned a corner.

In May 2015 we know there will be a general election, we just don’t know who will be in power afterwards but what else will happen this year?

·         The industry needs to counteract the workforce issues – this can come via two routes. First investment in training graduates is a key and all businesses should be seeking to achieve this whether for an individual or a few hundred. Every little helps. Secondly is reassessing how we approach a project, by using pre-fabrication more the number of labour hours should reduce;

·         BIM (Building Information Modelling) is something I was fortunate to witness in action this last week. BIM is changing how buildings, infrastructure and utilities are planned, designed, built and managed. Working for a large professional service firm, I think new approaches such as this which really added value to the customer are the future and will also bring greater efficiencies to projects;

·         Drones are being developed further and further and it will not be long before drones are used on construction sites, to monitor progress, health and safety or simply to take close up aerial shots. Whether 2015 if the year they become embedded is for time to tell but certainly I expect more use during the year;

·         The Government (who ever it may be) will need to shake up the industry to tackle the skills shortage. The acute skills required for certain  projects are becoming as scarce as UK coal mines but we still need them both!

The key priority for 2015 is the need to do more to bring young people into the industry through apprenticeships and training, and the housing crisis needs urgent resolution. The next government should stop playing political games and implement the recommendations of the Armitt Review and set up a National Infrastructure Commission.

It was nice to read this week that Henderson has decided against a sale of John Laing and instead will float the business. Although John Laing is no longer a builder, it plays a key part in raising money for projects, managing contractors and running assets.

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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Optimism in construction – yes let’s be positive now

Well 2015 feels well and truly up and swinging and the one point that strikes me in the various meetings I’ve had over the last two weeks is positivity and optimism and why not as housing is rising on the political agenda, and the UK is well and truly building again. Just looking out of the office window earlier in the week and the view over two construction sites just made me smile.

Although in history, 2014 was a good year for housebuilding, with the highest number of new homes constructed since the recession hit in 2007, and I think 2015 will exceed it. In every area across the UK, builders are hard pushed to meet the demand in the area – noted more so with a development local to where I live which is truly in the worse location it could possibly be, yet fully sold of the plan! Across the country varying sizes are being constructed, with the £8bn Battersea Power Station project through to small regional developments with 10 houses.

The statistics highlight the positive change:

·         In 2014, 144,000 new homes with registered with the NHBC, a whopping 8% increase on the prior year;

·         NHBC highlights further that over the last two years there has been recovery across the country with strong growth in Yorkshire & Humberside (and too right, it’s a lovely place to live); and

·         300,000 is the estimated number of new houses needed a year (according to the Royal Town and Planning Institute).

The main issue that is present, and growing as the industry increases production, is the shortage of skilled workers and materials, mainly bricks. There is a focus on upskilling and a number of recent discussions are demostrating to me that the industry is really looking at how to retain and train existing, attract new and invest in the future through apprenticeships and other means.

Away from housebuilding, 2015 is also showing strong signs:

·         Manchester Airport Group have submitted plans to build the first part of the logistics hub at Airport City;

·         Harworth Estates acquired the former Skelton Power Station in Leeds for redevelopment; and

·         Wykeland continues to develop Beverley town centre.

I think it all sums up as good news across the region. Yes there are still empty buildings and hard times for some but the whole industry should focus on the good signs of stability and renewed investor interest.

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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