Regional property markets should be wary of the impact of an impending London residential bubble bursting despite the current upturn, experts told Place AGM.
More than 100 people from across the region's property and construction industry joined Place North West at City Tower for the annual state-of-the-market discussion. Place AGM 2014 was sponsored by Clough & Willis, Cowgill Holloway, WHR Property Consultants and Kingsley Associates.
See below for slides and photos
David Leviten, head of commercial property at Clough & Willis, said of the event: "It was great to see an air of confidence from the region's property community on both a residential and commercial level. Each speaker gave an insightful overview of what's driving the market as well as their own predictions for the future.
"Challenges, of course, still lie ahead but with more investment coming into the North West from both the UK and overseas, better access to funding and an improving economy the outlook is most certainly looking buoyant. The aim now must be to build on these factors to secure a lasting and sustainable recovery."
The expert line-up of speakers included Michael Dall, Barbour ABI's lead economist; Mike Banton, managing director of Artez; Dan Crossley, investment partner at WHR Property Consultants; Stuart Stead, partner, and David Rainford, property finance director, at Cowgill Holloway Property & Construction; and David Leviten, partner at Clough & Willis.
Leviten from Clough & Willis opened the event with an overview of the current market, with emphasis on the booming residential market and the potential risk of another bubble if house prices continued to escalate.
Michael Dall at Barbour ABI set the scene with a positive overview of the UK economy. His figures showed that the construction sector is leading the way in terms of growth, with an output of £28bn in the first quarter of 2014.
North West construction had the fourth largest output in the UK in 2013, behind London, the South East and East of England, at a total of £12bn. Contract wins were dominated by residential which took up 32% of the market, while 25% of works were located in Merseyside, driven by healthcare development such as the £332m Royal Liverpool University Hospital scheme.
Despite the boom in construction, Dall warned of an over-exposure to the housing market. When faced with increases in house price values to 17% a year in the capital compared to 3% in the North West, he said the sector was "bound to cool, and when it does it will impact not just London, but all the regions."
According to Dan Crossley at WHR, market optimism is reflected in investment levels, with risk appetite among the big corporates at a six-year high and negative perceptions of the economy at a three-year low. The final quarter of 2013 boasted the highest volume of deals done since 2000 at £21bn, higher than the entirety of 2008. The appetite of UK institutions had also doubled from making up 18% of deals in 2012 to 33% in 2013, matched by overseas investment up to 48% compared to 23%.
Crossley said: "The market is now all about the regions, with companies flooding out of London, with recent examples such as Scottish Widows' purchase of Sunlight House and Helical Bar at Churchgate & Lee House."
The Sunlight House and Churchgate & Lee purchases also demonstrated the closing of the yield gap between primary and secondary assets, both selling above their guide prices to achieve circa 6% yields.
Stuart Stead and David Rainford at Cowgill Holloway gave an overview of the North West development funding market, with encouraging signs being identified from high street lenders and investors who see increased value in the region.
New entrants to the market in the form of bridging finance have also led to a downward pressure on loan pricing, with lenders now happier to work with distressed portfolios or part-built schemes at loan-to-value ratios of 50% or better. There is now a greater choice for North West developments as funders target areas outside London.
In terms of alternative lending structures, Stead touched on the continued attraction of funding from individual investors and pointed to recent Press around high net-worth individuals such as footballers backing schemes. However, he said pre-lets with strong covenants and forward funding agreements were still the Holy Grail for developers.
On support from the taxman, Stead said the upcoming renewal of the business premises renovation allowance was expected to make a further impact on the many wards defined as assisted areas, with a 100% tax relief available on works to vacant businesses premises in these areas to bring them back into use.
From the construction side of the market, Mike Banton, managing director of Bolton-based Artez, highlighted the challenges faced by a sector emerging from a significant down-turn. Banton identified human resources as a key issue, with a shortage in civil engineering, concrete frame and cladding expertise available. With the memory of 2008 redundancies still fresh in the mind of many businesses, he also pointed to the risk of hiring again and potentially having to cut back, but was faced with turning work away due to lack of manpower.
He warned of the temptation in a market split between specialists and generalists to focus efforts on the lucrative residential market, which despite such a high demand in the private-rented sector currently looked likely to crash again.
Click link to view and download slides
- Stuart Stead and David Rainford, Cowgill Holloway
- Dan Crossley, WHR Property Consultants
- Michael Dall, Barbour ABI
- Mike Banton, Artez
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