Future looking bright with a risk of showers
At the turn of the year I wrote an article regarding the prospects for the North West property market in which I displayed an air of 'cautious optimism'.
I'm pleased to say that, in retrospect, such optimism has proven well founded with a definite upwards trend as we approach the end of the year. Nevertheless, in keeping with my cautious side, it's important to consider the challenges that any shift in momentum creates. Therefore it might be best to keep those rose tinted glasses in their case for a little while longer!
In general, market indicators illustrate that developer activity in the North West is increasing, with demand for sites positively impacting on land values. Other factors such as improvements in the economy and government assistance through initiatives like Help to Buy are also pushing up house prices. One note of caution however, as there are concerns around mortgage availability on the back of MMR and future interest rate rises which may dampen demand as we move into 2015.
With regards the investment market, there is an overriding opinion across the industry that Manchester is currently the biggest target for both investors and developers outside of London and the South East, with recent transactions clearly demonstrating downward yield trends for well-located assets. Equally on the residential side, several schemes are being brought forward to specifically target growing PRS demand.
Outside of prime city centre cores, value seems to remain in secondary cities and towns, good located office stock and multi-let industrial. These areas retain a high yield against historic levels with value added opportunities as investors look to exploit supply issues; specifically as economic growth and a lack of new development increase occupier and tenant demand.
The overall positivity of the sector is also reflected in the debt market with increased appetite from high street lenders, growth aspirations from challenger banks and a proliferation of specialist lenders specifically targeting residential development and fund interest. Whilst leverage parameters are much unchanged, competition has seen some downward pressure on margins with greater options for bridging finance opening avenues for new players entering the market and enabling propco's and developers to capitalise on opportunities.
The other side of the coin
Overall I anticipate 2015 will see a continuation of the trends that have developed over the last year.
This, however, will create its own challenges for the North West market with 5 elements a potential cause for concern:
- As cash investment seeks out better value, continued flight to the region from London and the South East will lead to increased competition. This could potentially squeeze out North West players who perhaps, quite rightly, conclude prices paid are not sustainable.
- Large scale development will continue at a pace but it is important the market recognises the importance in supporting small to medium sized developers who are key to providing diversity of product outside city centres and key regeneration areas.
- There will be greater choice for North West investors and developers as funders continue to increase interests outside London with lenders backing experience as opposed to ''lending by numbers'.
- Increased activity could bring the skills gap into sharp relief. With the crash resulting in a relatively low number of people starting a career in the industry at that time, finding the right skills now for a project will prove increasingly difficult.
- A final word of caution. As things pick up, it is vital there is no return to the pre-crash levels of reckless lending – the lessons we have learned must be remembered in order to avoid a similar situation in the future.
As always, we're keen to hear the opinions of investors currently active in the sector as we continue to form a picture of the market for 2015. Despite my slight misgivings, there is no doubt that the coming year could be one of opportunity for those looking in the right places.