The restless consumer, residential pre-lets and mortgage rates start to rise
Making sense of the latest trends in property and economics from around the globe.
4 minutes to read
The Leisure sector is in the midst of a fresh wave of town centre regeneration and asset repurposing as occupiers, landlords and investors search for answers in the wake of the pandemic. A new report from Stephen Springham reveals both the huge challenges that lie ahead and the opportunities for a sector at a turning point.
Few opportunities are more compelling than those offered by consumers denied their usual down time during lockdowns. Survey data from Mintel reveals 36% of those who went to a pub for drinks over the summer planned to go more frequently, 27% said they are more likely to go for a pub meal and 31% said they were more likely to eat at a restaurant with table service. That enthusiasm was replicated across cinema, gyms, live sporting events and so on.
Meanwhile, the occupier fall out has been considerable. Retailer casualties have included a number of anchor store tenants such as Debenhams, and occupiers of medium sized units such as Arcadia. There is, according to Stephen, an unprecedented vacancy of large footprint units ideally suited for Leisure use.
Roll into that the fact that it is now an occupier's market, with landlords now much more predisposed to negotiating with Leisure occupiers than they were previously, and it's clear there is considerable space in the sector for a fresh wave of innovation. We are likely to see a whole host of new brands, formats and concepts in the months ahead.
London lettings
In London's residential rental market, the power lies with the landlords. Average rental values in prime central London rose by 2.8% in the three months to September, the largest quarterly increase in a decade.
The dynamic is particularly apparent in the super prime lettings market (£5,000-plus/week), where supply is so tight that some tenants have resorted to signing pre-let agreements on the back of design drawings and the track record of the developer in order to secure the right property, according to Tom Smith, Knight Frank's head of super-prime lettings.
In the wider prime London market, students and corporate tenants are two of the largest groups competing for what available properties there are. Students that are actively searching in the capital and are often happy to agree a tenancy quickly based on a video call are winning out against companies relocating staff, who face more paperwork, due diligence and rigidity around cost.
As a result, companies are having to widen search areas, look at alternative accommodation or, in some cases, delay moves until next year, according to Sacha Hawkins, head of the relocation agent team and diplomatic desk at Knight Frank.
Green buildings
The government's long awaited plan to decarbonise the UK's stock of existing homes is due out later this month ahead of the UN COP26 climate change conference.
Glaring questions as to who will pay to retrofit most of the UK's 28 million homes have now been joined by who will carry out that work amid an almost unprecedented shortage of skills, according to fresh warnings from the Construction Leadership Council, a cross government/industry body.
The CLC estimates that the retrofitting scheme will cost £525bn by 2040, including £168bn of tax payer investment, or £18,750 per home. There are other issues that need resolving, such as the degree to which the decarbonisation strategy will rely on expensive heat pumps or the cheaper hydrogen option. For more on that I recommend this episode of Intelligence Talks.
Mortgages
In a speech to the G30 group of central bankers yesterday, Bank of England governor Andrew Bailey said the Bank would have to act to curb inflationary pressures and made no attempt to contradict financial markets that have priced in an interest rate rise before the end of the year - see the FT write up.
The prospect of a rate hike is already being felt in the mortgage market. Two of the UK's major lenders have signalled to mortgage brokers that they intend to increase rates on low LTV, long-term mortgages this week. Knight Frank Finance partner, Hina Bhudia, tells the Mail that's a "sure sign" that the lenders believe a hike in the base rate is coming.
Borrowing costs are likely to remain low as any movement in the base rate is likely to be small, but this could be the tipping point at which borrowing costs turn to an upwards trajectory.