Commercial Property Market Review – May 2022

Return to the office

According to a recent business update, London’s office-leasing market is kicking back into life after its pandemic-induced slumber, with modern and energy-efficient space most in demand.

Companies are willing to pay higher rents for leases than they were a year earlier, according to Derwent London, a FTSE 250 office landlord. The value of its new lettings have risen to £3.9m in the year to date, 8.2% above the estimated rental value in December.

With the rise in flexible working, however, office occupancy remains far below pre-pandemic levels. Nationwide, the figure is currently about 26%, according to Remit Consulting, a significant fall from 60% before the pandemic.

This low occupancy rate has allowed new tenants to focus on securing high-quality space. Occupiers’ requirements are narrower but more immutable, Derwent said, with modern, energy-efficient offices that contribute to lowering a company’s carbon emissions highly sought after.

Strong demand but caution endures

The commercial market gained momentum in Q1 2022, according to the latest Royal Institution of Chartered Surveyors UK Commercial Property Survey, with demand growth accelerating at the headline level for both occupiers and investors.

A net balance of +32% of respondents reported an increase in occupier demand at the all-sector level, the strongest reading since 2015. The office occupier market was a top performer in the quarter, increasing its net balance from -3% to +30%. Office occupier demand in the retail sector returned to -1%, following  level of -23% in Q4 2021.

Investor demand was strong too, with a net balance of +32% of respondents reporting an increase in buyer enquiries at the all-property level. Alongside a steady increase in the supply of leasable office and retail space, sustained demand has led to the all-property capital value expectations being revised higher for the coming year.

Despite these strong figures, however, many contributors remain cautious in the face of macroeconomic pressures. Rising living costs and higher interest rates are causing some to point to a growing sense of nervousness in the market.

Logistics quarterly round-up

Uptake of logistics space in Q1 2022 totalled 10.43m sq. ft, according to CBRE’s latest UK Logistics Market Summary, twice as high as the corresponding figure in 2021.

Correspondingly, the UK vacancy rate fell in the quarter and currently sits at 1.55%. Ready-to-occupy supply also dipped slightly on a quarterly basis, meaning it has now fallen 55% year-on-year.

This busy activity, however, is being matched by increased speculative activity. The total speculative under construction space at the end of the quarter was 14.97m sq. ft. Even though more than a third has already been taken, the year ahead should be busy, the report suggests.

Continuing the trend, nearly all UK regions experienced rental growth in the quarter, as UK prime rents recorded yet another new record. Driven by this strength, Q1 industrial and logistics investment volumes, although lower than Q4 2021’s record levels, have risen 19% year-on-year.

It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission.

Residential Property Review – May 2022

Three key Queen’s Speech commitments

Housing featured prominently in the Queen’s Speech on 10 May, with social housing, rental reform and leasehold reform all part of the government’s priorities in the coming twelve months.

Of the 38 legislative announcements, there were three significant ones relating to housing: the Social Housing Regulation Bill, the Renters’ Reform Bill and the Leasehold Reform (Ground Rent) Act.

First, the Social Housing Regulation Bill promises to give tenants more rights with regards to the quality and safety of their homes. Five years after the Grenfell Tower tragedy, the proposed legislation will give more power to the regulator to inspect homes, order emergency repairs, issue limitless fines and intervene in badly managed organisations.

Standing in for his mother, Prince Charles affirmed the government’s commitment to “improve the regulation of social housing, strengthen the rights of tenants and ensure better quality safer homes.”

Second, the Renters’ Reform Bill promises to abolish Section 21 evictions and strengthen landlords’ rights of possession. A Section 21 notice, commonly known as a ‘no-fault eviction’, gives tenants just two months to move out – without the landlord having to give any reason for the eviction.

The Bill is expected to include widespread reforms to the private rented sector, including a national register of landlords. For now, however, details remain scarce; the government is expected to produce a White Paper later this year.

Third, the Leasehold Reform (Ground Rent) Act 2022 is the most advanced proposal, with the legislation set to come into force on 30 June 2022.

The Act will end ground rents for new, qualifying long residential leasehold properties in England and Wales by limiting the lease to no more than ‘one peppercorn per year’. It will also ban freeholders from charging administration fees for collecting this peppercorn rent.

Housing market still resilient in face of inflation worries

Affordability concerns are not yet holding back activity in the residential market, the latest figures show, even if the rising cost of living could forewarn leaner times ahead.

Total transactions in March reached 111,000, 12% above 2017-19 levels for the month, according to Savills. Meanwhile, sales agreed remained 18% higher than pre-pandemic levels in April, according to TwentyCi, which should translate into strong sales for the next few months.

Alongside this persistent demand, there are some signs of increased supply. The number of homes on the market has increased in each of the first three months of 2022. This re-balancing of supply and demand could take some heat out of the market, experts suggest.

Moreover, inflationary pressures are adding to affordability concerns, with lenders now expecting lower availability of mortgages in Q2 2022, according to a Bank of England (BoE) survey. Indeed, the BoE’s own decision to raise Bank Rate to 1.0%, the fourth such rise in six months, could further erode mortgage affordability.

It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission.

Up close and personal with your mortgage rate

Do you know if you could benefit from remortgaging? If not, the first step is to compare your current interest rate to those currently available on the market.

Several surveys over recent years have shown that a substantial minority of people have no idea what their mortgage interest rate actually is.

Interest rates on the rise

If you’re unsure about your mortgage interest rate, now is the time to find out, with Base Rate on the rise. If you currently have a tracker or discount mortgage, or are on your lender’s Standard Variable Rate, it’s likely you’re already feeling the impact on your bank account. So, now would be a good time to lock into a fixed rate deal before interest rates rise any further.

All knowing

Understanding your current financial situation is the first step towards improving it. Don’t stick your head in the sand – we can help you to assess your current mortgage rates, and whether more favourable options are out there. Please get in touch to find out whether you could save on your mortgage.

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.

Pensioners sitting on cash ISAs

An alarming set of data has come to light. Over three million pensioners are holding all of their ISA savings in cash!1

The analysis highlighted that during the most recent year for which figures were available (2018/19), there were 5.8 million over-65s holding ISAs, valued at just over £305bn in total, the average amount held was £52,500. However, 3.4 million of these were holding an average of £25,383 exclusively in cash ISAs, with a total amount of £87bn sat in these vehicles.

With very few of these 3.4 million pensioners likely to be earning interest of more than 1%, and many considerably less, former Pensions Minister Steve Webb commented, “Whilst holding small amounts of cash in an easy access account can be convenient, these figures show that huge amounts of money are sitting rotting in cash ISAs. Inflation is like a tax on savers. With inflation soaring, the spending power of cash savings is being savagely reduced. Many instant access cash ISAs pay little or no interest and runaway inflation will take a huge chunk out of the value of these savings.”

He continued, “Older savers need to consider urgently whether keeping their money in these cash accounts is the best way to protect their hard-earned savings, especially when the real value of their State Pension is also being squeezed.”

1CP, Freedom of Information, 2022

The value of investments and income from them may go down. You may not get back the original amount invested. A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.

In your 40s? Is your pension age changing?

More than four in five people in their 40s are unaware that the age at which they can access their pension might be about to change, according to research from the Pensions Management Institute (PMI)1.

The normal minimum pension age (NMPA) is set to move from 55 to 57 in 2028, which will mean millions have to wait an extra two years to access their retirement funds. However, public service pension scheme members and some private sector scheme members will be exempt.

After learning about the change, almost four in ten respondents said they expected to be impacted, while a further one in four were unsure whether the change would apply to them or not.

A wider discussion

Despite the importance of proper pension planning, only 14% of respondents have discussed their retirement plans with a financial adviser, the same research found. The PMI thinks that a wider discussion about pensions is needed, given that only 4% of respondents knew the current NMPA.

PMI President Lesley Alexander called the research “particularly worrying.” She commented, “The failure to communicate the change to NMPA effectively is complicated by the fact that it does not apply to everyone. This means it is vital that the general public understands clearly what their retirement choices are.”

1PMI, 2022

The value of investments and income from them may go down. You may not get back the original amount invested. A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.

News in Review

“There is no measure any government could take… that can make these global forces disappear overnight”

Inflation continues its ascent, with the Consumer Price Index (CPI) rising to 9.0% in the 12 months to April 2022, up from 7.0% in March, according to the latest data from the Office for National Statistics (ONS). Rishi Sunak addressed the Confederation of British Industry last week, following release of the latest data saying, “the Bank of England now expect inflation to peak at 10% later this year. And those inflationary pressures are starting to weigh on growth… There is no measure that any government could take, no law we could pass, that can make these global forces disappear overnight.”

Warning that the next few months will be tough, the Chancellor called on businesses to “invest, train and innovate more” to help boost productivity and improve the long-term prosperity of the UK. He said the government’s response to the cost-of-living crisis will “evolve” as the situation does, however he did not outline any immediate action, citing that ministers “stand ready to do more.”

Jubilee celebration city status winners and the Elizabeth Line finally opens

As part of 2022 Platinum Jubilee celebrations, eight new cities were named last week, with at least one featuring in every UK nation, plus on the Isle of Man and the Falkland Islands. As part of a Platinum Jubilee civic honours competition, applicants had to showcase their cultural heritage, and their local and community identity. Colchester, Doncaster, Wrexham, Bangor, Milton Keynes and Dunfermline received the royal honour, as well as Stanley in the Falklands and Douglas on the Isle of Man, completing the geographically diverse list of eight.

According to the Cabinet Office, ‘city status can provide a boost to local communities and open up new opportunities for people who live there.’ By way of example, granted city status in 2012, Perth, ‘has reaped the full benefits, with the local economy expanding by 12% in the decade it was granted city status.’ According to some residents, being awarded the status has firmly established them on the ‘international map as a place to do business.’

Just before Jubilee celebrations kick into full swing, the Elizabeth Line, linking Reading and Essex via central London, opened to passengers on Tuesday. Hampered by several delays, and originally due to open in 2018, passengers are now able to travel the Abbey Wood to Paddington section, with those wishing to travel the length of the line currently having to change at Paddington or Liverpool Street, until 2023. The government has outlined that the new line will bring £42bn to the UK economy and it has created over 55,000 jobs across the UK. Expectations are that the line will support regeneration and new homes along its route.

Record level of fraud prevented

Specialist police force, the Dedicated Card and Payment Crime Unit (DCPCU) comprising the Metropolitan Police Service, City of London Police officers and Metropolitan Police Service and staff from UK Finance, prevented a record £101m worth of fraud in 2021. Established 20 years ago, and funded by the finance and banking industry, the total amount prevented from being stolen was the highest in the unit’s history.

Managing Director of Economic Crime at UK Finance, Katy Worobec, commented on the success of the DCPCU, “The unit’s work in tackling organised criminal gangs has stopped stolen money from funding other serious criminal activities including terrorism, human trafficking and drugs smuggling. Unfortunately, criminals will continue to try to scam the public, so we urge everyone to follow the advice of our Take Five to Stop Fraud campaign: always take a moment to stop and think before parting with your money or information.”

Retail sales experience surprise increase

Alcohol and tobacco sales were found to have driven an unexpected rise in headline retail sales in April. According to ONS data, UK retail sales volumes increased by 1.4% last month, this follows a 1.2% fall in March. Food store sales volumes increased 2.8% in April, while non-store retailing sales volumes, predominantly online-only retailers, rose by 3.7% in the month, led by stronger clothing sales. Off-licences also saw a boost in sales last month, suggesting that people were choosing to stay at home in an effort to save money. The proportion of online retail sales rose to 27.0% in April from 25.9% the previous month, considerably higher than the 19.9% recorded in February 2020 prior to the pandemic.

Here to help

Financial advice is key, so please do not hesitate to get in contact with any questions or concerns you may have.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

All details are correct at time of writing (25 May 2022)

News in Review

“Electric car sales are energising the market”

With challenging financial and economic news in abundance, there are some good signs at least for the UK car industry. Recent analysis from the Society of Motor Manufacturers and Traders (SMMT) has shown that sales of used cars in the UK increased by 5.1% in Q1, with 1,774,351 cars changing hands.

Breaking it down month by month, auto sales were up 17.7% in January and by 7.4% in February, but down in March (-6.8%). Interestingly, as consumers look to buy more environmentally friendly vehicles, the market for second hand electric cars is seeing immense growth, with sales of used battery electric vehicles (BEVs) growing from 6,625 to 14,586 in Q1, a rise of 120.2% from a year earlier.

Chief Executive of the SMMT Mike Hawes commented, “With the new car market hampered by ongoing global supply shortages, growth in the used car market is welcome, if unsurprising especially given we were in lockdown last year. Electric car sales are energising the market, with zero emission vehicles starting to filter through in larger numbers to consumers looking forward to driving the latest and greenest vehicles. Although there is some way to go before we see the recent growth in new EVs replicated in the used market, a buoyant new car market will be vital to help drive fleet renewal which is essential to the delivery of carbon savings.”

As used car prices soar, there are expectations that cost-of-living issues are likely to have an impact on the used car market, but that demand could stay high and “is likely to continue until the issues impacting new car production are resolved and more supply enters the used car market. That is unlikely to be this year,” according to UK Head of Automotive at KPMG, Richard Peberdy.

UK economy grew in Q1, but contracted in March

Data released by the Office for National Statistics (ONS) showed the UK economy grew by 0.8% in Q1, primarily because activity rebounded strongly in January as some Omicron-related restrictions lifted. However, the economy contracted unexpectedly in March, as consumers started to rein in spending. GDP fell by 0.1% in March, predominantly led by a 0.2% fall in output from the service sector. A Reuters poll of economists expected GDP to be flat in March and to have grown by 1.0% during Q1.

ONS Director of Economic Statistics Darren Morgan commented, “The UK economy grew for the fourth consecutive quarter and is now clearly above pre-pandemic levels, although growth in the latest three months was the lowest for a year.”

Summer support package on the cards?

It has been reported that Chancellor Rishi Sunak is intending to make an announcement in August, around the time when the energy regulator Ofgem prepares the next price cap, amid mounting pressure for the government to act to support households with their finances. A package to expand cost-of-living support measures to buffer households from a further jump in energy bills, when the revised price cap takes effect in October is hoped for. Speaking this week, Andrew Bailey Governor of the Bank of England said Britain faces an “apocalyptic” rise in food prices caused by Russia’s invasion of Ukraine as households continue to be impacted by escalating costs.

Markets

Last week there was a sharp sell-off of shares following the surprise news of an economic contraction, with the FTSE losing ground as the GDP news weighed. This week, the FTSE 100 entered positive territory as investors digested the most recent Labour Force Survey data from ONS. The unemployment rate fell to 3.7% between January and March, the lowest for almost 50 years, as job openings rose to a new high of 1.3 million. For the first time since records began, there are more job vacancies than unemployed people in the UK.

Here to help

Financial advice is key, so please do not hesitate to get in contact with any questions or concerns you may have.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

All details are correct at time of writing (18 May 2022)

Are your home contents worth more than you think?

In January this year, a team clearing out the home of a retired antiques dealer and lifelong hoarder found a treasure trove of valuables worth £50,000.

Among the piles of bags and boxes stuffed haphazardly into the Victorian townhouse were eight grandfather clocks worth £1,000, an antique chair worth between £600 and £800, and a 1956 Morris Minor ‘Split Screen’ classic car valued at up to £6,000 in the garage.

Do you know what’s in your home?

Of course, most people don’t have a home crammed with antiques; nevertheless, homeowners have made some incredible discoveries over the years. For example, an ancient Japanese coffer that had been sought after for decades by the Victoria and Albert Museum was found in the owner’s home after his death, where it had served as a TV stand for 16 years. It sold for £6.3m!

If you haven’t been up in your attic for a while, now could be the time. If you have any valuables knocking around that are currently unaccounted for, you might risk being underinsured.

Know your worth

Understanding the true value of your home contents (whether or not you have undiscovered valuables lurking in the attic) is crucial to getting the right home insurance cover. We can help you value your possessions and source the home insurance policy that best suits your needs.

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.

Life admin personality types – are you a forward thinker?

When it comes to mundane but crucial organisation tasks – what life admin personality type are you?

Do you tend to have an ‘I’ll do it later’ approach to tasks? If you live in the moment and avoid life admin completely, tend to run late, lack motivation or structure, resulting in poor organisation – you certainly fall in the ‘procrastinator’ trait set. Or perhaps you’re a ‘wishful thinker,’ biting off more than you can chew; well-intended and attempting completion of tasks on your to-do list but often falling short or failing to complete tasks in time.

The ‘forward thinker’ operates by ordering priorities. Possessing strong time management and organisational skills, making use of to-do lists and achieving. The good news is – whatever type of personality trait applies to you, we’re forward thinkers so you’re in capable hands!

The value of investments and income from them may go down. You may not get back the original amount invested. A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.

Financial freedom in retirement

When are you thinking of retiring? With many pre-retirees reassessing their lives and priorities in the wake of the pandemic, there really is a seismic shift for many people towards achieving life balance. People need a plan to flex with their changing aspirations – it’s become more about living life rather than going through the motions of the daily grind.

With earlier retirement a serious consideration for many seeking balance, a quarter of Brits who aspire to retire early feel that age 60 is the optimum time to do so1.

Positive steps to a new lifestyle

What really makes you happy? If you’re planning to celebrate your 60th birthday by saying ‘goodbye’ to working life, it’s good to know that 68% of people report an increase in overall happiness as a result of retiring early, with 44% of early retirees reporting their family relationships improved and 34% citing improvements in their friendships. From a health perspective, 57% of early retiree respondents report a boost to their mental wellbeing, with 50% believing their physical wellbeing has improved.

In the driving seat

Nearly a third (32%) of people who retired early or plan to do so are driven by the desire ‘to enjoy more freedom while still being physically fit and well enough to enjoy it.’

Other factors driving people to pursue early retirement include financial security (26%), reassessing priorities and what’s important to them in life (23%), wishing to spend more time with family (20%) and finding they are either ‘tired or bored’ of working (19%). Stress is also a contributing factor that 19% of respondents are keen to eradicate.

Time to reflect

With a sizable 24% of people returning to work after retiring because they experience financial issues, careful planning is essential. Interestingly, 47% of retirees found that their finances worsened and only 22% felt they benefited financially from their decision to retire early.

Your plan

People cited steps toward making early retirement achievable like paying off a mortgage (30%), saving little and often (29%), saving extra when they receive a pay rise or bonus (19%) and receiving an inheritance (14%).

We’re here to reassure you that happiness doesn’t need to come at a cost when retiring early. Although it’s very important to be realistic, with meticulous planning and careful consideration, we can assess and develop a robust plan to align and flex with your changing requirements and priorities.

1Aviva, Dec 2021

The value of investments and income from them may go down. You may not get back the original amount invested. A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.