Leading Indicators | HS2: the government grapples with plans for northern connectivity
Discover key economic and financial metrics, and what to look out for in the week ahead.
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Here we look at the leading indicators in the world of economics.
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Lending to CRE remains positive
Net lending to commercial real estate was positive for the sixth consecutive month in August, rising by c.£1bn. This was its largest increase since April. Net lending to standing property totalled £944m in August, its strongest level in five months, while net lending to developments was positive for the first time since April in August, at £105m.
Non-bank lenders, not captured in the Bank of England data, remain a growing section of the market. In 2012, non-bank lenders accounted for 15% of UK CRE loan originations. By 2022, this had more than doubled. Non-bank lenders remain well capitalised and active in the market, although typically seeking higher margins.
In the wake of the Bank of England’s recent base rate decision, underlying costs are starting to moderate. The 5-year SONIA swap rate is currently 4.61%, down 15bps m-m and 25bps lower than at the end of August. On balance, the outlook for all in debt costs reducing is more positive.
Cambridge top innovation
The UK continues to punch above its weight on the technology and innovation stage. Cambridge has retained its position as the most intensive science and technological cluster in the world, according to the 2023 Global Innovation Index (GII). Oxford placed third. The GII found that per one million inhabitants in the Cambridge cluster, 6,582 patent applications were filed, and over 37k scientific articles were published in the past five years.
UK CRE continues to benefit from innovation in Cambridge. Cambridge saw 86k sq ft of life sciences take-up in Q2 2023, which was six times greater than in Q2 2022. These levels could be much higher, were it not for a significant undersupply of space.
Other sectors are also spurring innovation. There are 2,276 gaming companies in the UK according to our 2023 UK Gaming Report, which is up 31% since 2016. In 2022, UK gaming sector take-up reached c.437k sq ft, up 45% on 2021, and in H1 2023, take-up totalled c.98k sq ft.
The end of the line
One issue causing greater challenge for the UK is that of infrastructure, and how to fund it. Already a focus for the Conservative and Labour political party conferences this week and next, concerns over the future of HS2 have brought the topic into sharp relief. Alternative transport projects that would better link northern cities have been mooted as a replacement. Cities such as Manchester, Sheffield and Leeds would receive additional economic benefits from greater connectivity, which all else equal, would support real estate activity. The more fundamental question of how to provide necessary infrastructure in a time of fiscal tightening remains unanswered.
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