Ian Cross Sector Property Update Johnny Dudgeon, FRICS Savills Lincoln Email: jdudgeon@savills.com Tel: 01522 508952
UK Housing Market Residential Rural Commercial Strategic Land
East Midlands West Midlands East of England Scotland South West North West Wales South East Yorks & Humber North East London Annual House Price Growth 0% 2% 4% 6% 8% Source: Savills Research using Land Registry
UK Mainstream House Price Growth Source: Nationwide (to Sept 2017), Savills +28% Last 5 years Next five years +14%
Mainstream house price forecasts 5 years 2018-2022 17.6% 17.0% 17.6% 18.1% 14.8% 15.9% 11.5% 14.8% 7.1% 14.2% 11.5%
730,000 Transactions 1,217,000 1,195,000 1,529,000 1,654,000 2017 UK Housing Transactions 1,195,000 2018 1,800,000 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 1992-2002 - 2002 2007 average average 12m to Jun-09 12m to Sep-14 Current Chart source: HMRC 2019 1,155,000 2020 1,170,000 1,135,000 2021 1,195,000 2022 1,210,000
Who will be buying? Source: Savills, *2007 Previous (2002-07) Current (2017) Forecast (2022) First-time buyers 371,000 353,000 380,000 Mortgaged home movers 750,000 358,000 350,000 Mortgaged buy to let 183,000* 75,000 55,000 Cash buyers 386,000 407,000 425,000
The Rural Land Market
per acre Acres Long term values and supply Source: Savills Research & Defra 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 500,000 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 - Source: Savills Rural Research & DEFRA Average UK Farmland ( per acre) Supply/Turnover (England)
Number of Acres East Midlands - Publicly Marketed* Farmland * Revised Series January 2016 - Lowland farms/farmland over 50 acres with VP marketed in the National Press + Regional press & internet sites (since beginning 2013) 12,000 2013 2014 2015 2016 2017 10,000 8,000 6,000 4,000 2,000 0 Derbyshire Leicestershire Lincolnshire Northamptonshire Nottinghamshire Rutland Source: Savills Research
Source: Savills Research Investment performance Source: Savills Research Net Income Return Capital Growth 35% 30% 25% 20% 15% 10% 5% 0% 05 06 07 08 09 10 11 12 13 14 15 16 17 05 06 07 08 09 10 11 12 13 14 15 16 17 05 06 07 08 09 10 11 12 13 14 15 16 17 05 06 07 08 09 10 11 12 13 14 15 16 17 All let property Agricultural let property Residential let property Commercial let property
per acre England - Source of income Source: Savills Research Agricultural Residential Commercial Leisure Woodland Sporting Minerals Other 250 200 150 100 50 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Savills Research
Index: 1992 = 100 Farmland v other assets (capital growth) Source: Savills Research 900 800 700 600 500 400 300 200 100 0 19921993199419951996199719981999200020012002200320042005200620072008200920102011201220132014201520162017 Prime Central London Prime GB Arable Residential Gold Wheat Commercial Gilts
Debt Sales Significant in Light of Low Base Rates 30% 25% 20% 15% 10% 5% 0% Debt as Reason for Farmland Sale Base Rate Source: Savills Rural Research, Bank of England
UK Government View: Devolution and future farm policy I want to see the devolved administrations exercise more power in the future, just as long as it is consistent with making sure farmers in every part of the country have unimpeded access to the UK wide internal market. outside the EU the devolved administrations will have more powers than ever before to shape agricultural policies that suit their jurisdictions. 15
Key issues of Brexit for Agriculture Support Trade Regulation Labour Restructuring Innovation
Agricultural Productivity Index Productivity of UK Farming vs New Zealand Source: Food & Agriculture Organisation of the United Nations (FAO) 300% 250% 200% 150% 100% 50% 0% 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 UK New Zealand 70m 1984 29m 2016 Production: -5%
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 per acre GB farmland values by country 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 England Scotland Wales Year-on- Year 10 Yr CAGR Great Britain (2.3%) 7.0% England (2.2%) 7.3% Scotland (1.2%) 4.4% Wales (3.5%) 7.4% English Regions East (2.7%) 6.5% East Mids (6.1%) 6.6% North (4.2%) 6.5% West Mids (2.7%) 6.0% Source: Savills Rural Research South West (2.1%) 7.6% South East 3.1% 7.4%
Average Farmland Value ( /acl) GB Annual Farmland Supply (ac) GB Farmland Forecasts Source: Savills Research 8,000 7,500 GB Supply Average Value GB Farmland Straight Commerical Holdings Amenity / Lifestyle Holdings 200,000 180,000 160,000 7,000 6,500 6,000 5,500 140,000 120,000 100,000 80,000 60,000 40,000 20,000 5,000 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 0
Commercial
m m The markets outside London had their best ever year for investment activity Greater London Outside Greater London 35,000 35,000 30,000 30,000 25,000 25,000 Alt / Mixed Alt / Mixed 20,000 Leisure Industrial 20,000 Leisure Industrial 15,000 Ret Ware Shop Centre 15,000 Ret Ware Shop Centre 10,000 Unit Shop Office 10,000 Unit Shop Office 5,000 5,000 0 0 21
Joules Lidl Aldi Hotel Chocolat Superdry Fat Face Ted Baker Grp Matalan Primark Jigsaw Poundland John Lewis Topps Tiles* Dunelm* Game UK Halfords* Morrisons Debenhams Tesco UK Asda Next Plc Sainsbury's M&S UK WHSmiths* Boux Ave* Carpetright* Maplin Moss Bros* Mothercare Total sales yr/yr Retail unfashionable but past its darkest moment Christmas 2017 was better than expected (again) What is defensive against internet shopping? There will be more stock on the market this year Stock selection is everything in retail In 2006 the vacancy rate for prime locations was 2.1% and for secondary 7.6% Now prime is 1.4% and secondary is 14.5% 25% 20% 15% 10% 5% 0% -5% Pick: Experience or Convenience, retail warehousing -10% -15%
Sq ft (millions) Logistics supported by structural change Take-up hit record levels in 2016, but was only average in 2017, Q1 2018 strongest ever quarter Supply tight Rental growth at double normal levels, and yields are now lower than offices Urban logistics supported by last mile, densification, mixing of uses Impact on the larger logistics markets of Brexit, staff costs and AI? 33 31 29 27 25 23 21 3 year rolling average take-up Pick: Develop big sheds or buy urban logistics especially where there is medium term potential for change of use 19 17 15 2009 2010 2011 2012 2013 2014 2015 2016 2017
Jan-90 Jul-90 Jan-91 Jul-91 Jan-92 Jul-92 Jan-93 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 7.00% London prime office yields are low in historic terms 6.50% 6.00% 5.50% 5.00% 4.50% 4.00% 3.50% 3.00% 2.50% City office West end office Source: Savills 24
Top rent ( per sq ft) And tight supply will drive further growth in prime rents in the major regional cities 36 34 32 30 28 26 24 2010 2011 2012 2013 2014 2015 2016 2017 2018 Birmingham Bristol Edinburgh Glasgow Leeds Manchester Source: Savills
Sq Ft # of lettings However, the growth of the serviced office operator has definitely affected take-up of units of less than 5,000 sq ft (8% down yoy, 29% down on 2011) 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 Serviced office operator take-up # of sub 5,000 sq ft lettings 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2,400 2,300 2,200 2,100 2,000 1,900 1,800 1,700 1,600 1,500 26
Planning and Development
Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Number of new homes per year Political urgency to accelerate to 300K homes per annum. Is there market capacity? Source: DCLG 350,000 300,000 250,000 200,000 New planning consents NPPF introduced Need 150,000 100,000 50,000 Net additional dwellings EPCs for new dwellings 0
Q2 1995 Q2 1996 Q2 1997 Q2 1998 Q2 1999 Q2 2000 Q2 2001 Q2 2002 Q2 2003 Q2 2004 Q2 2005 Q2 2006 Q2 2007 Q2 2008 Q2 2009 Q2 2010 Q2 2011 Q2 2012 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 2nd hand transactions (rolling annual average) New build transactions (rolling annual average) Help to Buy is accelerating new build delivery Source: Savills using Land Registry 2nd hand New build 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0
But affordability limits market volumes in higher priced markets Lower quartile house price to lower quartile earnings ratio 0.0 to to 5.9 Income required to buy the average new home 27,000 Percentage of households with the required income 45% 5.9 to to 7.6 30,000 47% 7.6 to to 9.1 36,000 43% 9.1 9.1 to to 11.4 44,000 39% 11.4 to 30.7 11.4 to 30.7 Source: Savills using ONS, HM Land Registry, DCLG and CACI 68,000 21%
Growing Build to Rent pipeline Source: HMRC, Savills / BPF 20% Of households in England privately rent The number of 35-44 year olds in the private rented sector has increased from 11% to 29% in the last 10 years. 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Build to Rent Pipeline Complete Construction Planning 58,542 55,344 55,929 53,083 27,566 25,882 22,565 23,636 17,255 18,352 19,106 15,356 Q1 Q2 Q3 Q4
Summary Residential mainstream had a good run but more muted going forward Farmland had a phenomenal last 10 years. More commercial farmland having a price adjustment Commercial yield compression in West End offices and logistics Strategic land Government still not getting close to 300,000 houses being built per annum Always opportunities in a changing marketplace
Thank you Johnny Dudgeon, FRICS Savills (UK) Limited Olympic House Doddington Road Lincoln LN6 3SE Email jdudgeon@savills.com Telephone 01522 508952