Persimmon, Derwent London hail the brighter outlook
Making sense of the latest trends in property and economics from around the globe
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The pace of rental growth for the best offices in the capital accelerated through the first half of the year, Derwent London said in its half-year results yesterday. The group agreed £8.8 million of new rents during the period, with open market lettings running more than 10% above December's estimated rental values (ERVs).
That culminated in the strongest ERV growth since 2016. The company upgraded its 2024 rental guidance to 3% to 6%. A couple of key quotes include:
"In February 2024, we said we were nearing this cycle's valuation low point. The outlook has continued to improve, supported by a strengthening of the UK economic environment and an initial interest rate cut, with yields on London offices looking increasingly attractive to a range of investors....
"The significant rise in space under offer shows substantial pent-up demand, with occupiers prioritising high-quality space in core central locations. At the same time, supply of space that meets these criteria, whether existing or under development, is low. The market is adjusting to this, and businesses with large space requirements are committing earlier, putting further pressure on supply."
Persimmon
Persimmon's half-year results also pointed to a significant improvement in the outlook. Since July 1st, three days before the election, the group's net private sales rate per outlet per week has averaged 0.69, a 68% increase compared to the same period a year earlier.
The private average selling price in the company's forward order book is up 9% since the start of the year. Private forward sales stand at £1.12bn, up 28% year-on-year. The company now expects to deliver approximately 10,500 completions, which is at the top end of its previous guidance. Margins are in line with last year.
"We are encouraged by the early announcements of the new government, particularly around planning," said the group's chief executive David Finch. "In addition, our customers are benefiting from improving mortgage rates which has led to a strong pick up in enquiries and visitors."
Mortgage rates
Natwest, Barclays, and HSBC all announced cuts to their fixed-rate mortgages this week.
Swap rates fell considerably after the Bank of England's August 1st decision to cut the base rate. The lenders are clearly happy to pass this on to borrowers quickly rather than rebuild margins that have been cut to the bone. The resumption of the rate war will underpin what looks likely to be a busy autumn in the housing market.
The RICS Residential Market Survey, out yesterday, suggests activity was stable during July; however, respondents are growing increasingly confident about the future. A net balance of +30% of survey participants now foresee sales rising over the coming three months. This is up from a net balance of +22% beforehand and marks the strongest reading for the near-term sales expectations series since January 2020. At the twelve-month time horizon, a net balance of +45% of respondents anticipate an increase in sales activity, up slightly from 40% in the June survey.
All parts of the UK are anticipated to see some pick-up in house prices over the year ahead, with expectations particularly elevated in Northern Ireland, the East Midlands and London.
Lettings
Conditions remain very challenging for renters, according to the RICS survey. Demand continues to rise, though not quite at the pace of the past twelve months, and the flow of listings continues to deteriorate.
The new landlord instructions metric returned a new balance of -16%. A net balance of +33% of respondents see rents rising over the three-month time horizon, though that reading is the least elevated since the first quarter of 2021.
In other news...
Italy doubles the flat tax for wealthy residents - Kate Everett-Allen has the details.
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