With the UK economy still struggling to pull out of this long recession, there’s not a lot in the way of good news yet. 2013 is predicted to continue with a flat-lining economy. Despite the austerity measures, Britain again borrowed more than expected in December to provide the necessary funds to makes ends meet – plugging the gap between spending and income, and simply adding more overall debt to our long-term debt mountain.
There’s more bad news in the retail sector after Christmas with HMV, Blockbuster and Jessop’s all going under, and after a similar story with several retailers in 2012; this is all having a devastating effect on the average high street.
With thousands of jobs put at risk from these collapsing retailers – retail is one of the largest providers of employment in the UK – this is yet another hammer blow to the anaemic UK economic recovery.
All this spells difficulties for landlords as job losses equate to residential rent arrears and vacant units mean rent reductions and loss of value for commercial property owners. Already burdened with full empty business rates on their void retail units, landlords and retailers alike are calling for urgent government action on what property agents CBRE have called “the grossly unbalanced business rates tax”, plus there’s what some commentators have said are extortionate town centre parking regimes.
Commercial property agents CBRE think it is unlikely that 2013 will be as bad as 2012 in terms of major retail administrations, with very few similarly heavily indebted big names left on the high street. However, faced with severe competition for the out-of-town centres, and rapidly growing Internet sales from the likes of Amazon, many still healthy retailers will be looking to downsize their store portfolios in all but the busiest retail centres.
As shopping habits change, it now looks inevitable that some high streets will be increasingly redundant. No doubt, successful retailers will come out of this downturn much leaner and meaner, and convenience will always be a big driver of consumer spend, particularly in areas of high density foot fall traffic, such as small retail locations near urban centres and housing estates, rail stations and airports etc. But many high streets will continue their apparent terminal decline, which will almost certainly lead to higher retail vacancy rates this coming year.
It’s not surprising then that the government have mooted a radical change in the planning laws (see the main story) which would allow the conversion of office blocks into residential space – office vacancy rates, like retail, are at record levels, with some areas approaching 21%. What’s perhaps more surprising is that this proposed change does not, as yet, include retail space.
On the other hand some good news at last on the residential front. Recovery of the UK housing market appears to be gathering pace, with house prices in many areas set to surpass the pre-financial crisis peak for the first time. Some forecasters are now predicting we will see prices back to 2008 levels within 12 months as the number of houses up for sale is the highest since the start of the economic crisis.
House builders are now increasingly optimistic as Barratt and Bovis Homes recently reported growth and the Royal Institute of Chartered Surveyors (RICS) are saying that the housing market may be over the worst. According to figures produced by the Centre for Economics and Business Research (CEBR) quoted in the Daily Telegraph, a typical UK house will cost £223,000 by 2014, a figure which is an increase of 0.7pc higher than the 2007 peak.
Another chink of light in the gloom is the growth in investment in student accommodation. Despite a fall in the number of student applications and acceptances in 2012, the amount of capital committed to the sector has grown dramatically over the last 12 months. According to CBRE’s latest 2012 data student housing is outperforming other asset classes by a good margin, delivering 9.6 per cent total returns in 2012. Contrast this with 4.4 per cent for all offices and 2.2 per cent for all retail over the same period. However, those landlords with smaller student portfolios should note that this market is becoming increasingly dominated by specialist funds and developers. However, location is key as some university towns remain undersupplied.
This all bodes well for owner occupiers and buy-to-let landlords, many of whom bought at near peak prices and now find themselves in negative equity. According to the forecasters, all the signs are that house prices will begin to accelerate in the coming years as the economy gradually revives, with CEBR predicting a typical home at £261,000 in five years time.
However, there are and will be major differences regionally, for example: average London house prices, which are being supported mainly by demand from foreign buyers, are now approaching £490,000, an increase of around 10pc in 12 months, according to Rightmove.
With the government’s growing conviction that more is needed to stimulate economic growth, there is every possibility that other moves will be made to ease the mortgage famine which has prevailed since the Credit Crunch began. Despite the gloom on the economic front, reported job losses and retail in particular, several forecasters are now seeing evidence of an easing of mortgage availability and an improving jobs market.
Elsewhere in this month’s newsletter chartered surveyor Michael Lever gives advice on dealing with commercial tenants in difficulties, there’s advice for landlords on security from the Master Locksmith’s Association and advice from Beth Davies, an advisor at PropertyReclaim.com on using the 1988 Housing Act, Section 8 Notice.
Read the Full Newsletter here: www.landlordzone.co.uk/update/january13.html
Tom Entwistle, January 2013