Midweek property news update - 18 August
Wages soar, the hydrogen question and commercial landlords adopt a residential strategy
4 minutes to read
Wages
UK wages climbed 8.8% during the three months to June as businesses nationwide struggled to fill positions, the fastest pace since records began. Additionally companies posted another record breaking number of job vacancies during the same period according to ONS data.
Economic activity remains relatively high. Young people are staying in education, older people are taking early retirement and others are off work suffering from long-term ill health, but even so, the latest round of data places more attention on the Bank of England’s interest rate policy. Economists broadly expect that rises will begin in early 2022.
Allan Monks, an economist at JP Morgan quoted in the Telegraph, said he expected an initial rate rise will be followed by increases every six to nine months if the recovery keeps up its current momentum.
Bottlenecks
The data is likely to compound pressure on the construction industry, which is already suffering from a shortage of workers. Construction output is currently forecast to rise by 13.7% in 2021 and another 6.3% in 2022, according to the Construction Products Association.
Staffing issues combined with worsening shortages of key supplies are weighing heavily on the minds of developers both in the UK and in the US, where homebuilder sentiment dipped once again in August, according to National Association of Home Builders/Wells Fargo data.
Bottlenecks in global supply chains are being compounded by new outbreaks of the virus - see the partial shutdown of one of China's busiest ports last week. Shipping costs have soared to about $15,800 to move a 40-foot container from China to the US west coast — a tenfold jump on pre-pandemic levels and up by half on last month alone, according to data provider Freightos quoted in the FT.
Flexible offices
On Monday we covered the latest data on London's office market revealing a flight to quality. Today, Will Matthews looks at the growth of flexible office space, and finds commercial landlords are taking a leaf out of the books of residential developers in order to secure tenants.
"They’re creating a show suite and then giving occupiers the ability to select so that they can then create their own bespoke unit which is then delivered on another floor within a set timeframe," says Toby Pritchard-Davies, a partner in Knight Frank's London Office Leasing team.
"In turn, this has meant a move into the managed office market, with some landlords offering new tailored services such as British Land’s Storey or Landsec‘s Customised."
Hydrogen
We've been tracking the government's indecision over how to decarbonise the UK's stock of existing homes and it remains unclear whether ministers will throw their weight behind hydrogen, heat pumps or a mixture of the two.
There remains much uncertainty over which technology is most appropriate. Hydrogen would involve less upfront investment and would be delivered through the existing gas network but there are significant technological and cost uncertainties. Heat pumps are familiar in Europe but are more expensive and require more heat efficient buildings to work effectively. Last month we covered an Office for Budget Responsibility report admitting that "the option value in waiting to see how that is resolved is high."
Yesterday the government published its first hydrogen strategy - FT write up here. UK taxpayers could subsidise the production of “low carbon” hydrogen to make it as cheap as natural gas and the government is consulting on whether subsidies should be met out of general taxation or via surcharges on household energy bills.
Details in the strategy reveal the degree to which hydrogen for heating homes remains a relatively nascent technology, though trials are progressing. Hydrogen will soon be blended with natural gas and supplied safely to over 650 homes as part of a trial in Winlaton in the north-east of England. Meanwhile, the H100 neighbourhood trial project in Fife is building a 100% electrolytic hydrogen production and distribution network and installing 300 homes with new hydrogen boilers to demonstrate hydrogen for domestic heating nationwide.
For more, see this Spectator piece from last weekend on the true cost of net zero.
In other news...
Retail sales data suggests consumer spending may be slowing in the US, the Fed is confident Delta won't dent growth, big tech wants its workers back in the office, Quantas demands all staff get vaccinated, the Euro area outlook improves, and finally, China puts the wealthy on notice.
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