RESIDENTIAL MARKET COMMENTARY - V
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A Cushman & Wakefield Insight Publication RESIDENTIAL MARKET COMMENTARY February 2018
Economic Overview
ECONOMIC OVERVIEW
Most forecasters have taken the announcement of
a two year transitional period following the UK’s ECONOMIC INDICATORS 2018 2019 2020 2021 2022
exit from the EU on the 29th of March 2019 as an
opportunity to revise-up their forecasts for the GDP growth (%) 1.8 1.6 1.9 1.9 1.9
coming few years (albeit by relatively modest
levels). Oxford economics are predicting GDP Household Disposable
1.7 2.0 2.9 3.4 3.5
Income – Current prices (%)
growth of 1.8% and 1.6% in the coming two years,
above those of the OBR who are predicting figures CPI Inflation (%) 2.2 1.6 1.7 1.7 1.8
of 1.5% and 1.3% followed by 1.3%, 1.4%, & 1.5%
in the years to 2022.
Exchange Rate (US$ per £) 1.43 1.48 1.49 1.50 1.50
The minutes from the MPC’s March meeting also
Exchange Rate (Euro per £) 1.14 1.14 1.17 1.19 1.20
strongly implied that we will witness a further rate
rise (to 0.75%) announced in May’s meeting. Most
forecasters are then anticipating a further rise (to BoE Interest rate (%) 0.75 1.25 1.75 2.25 2.75
1.0%) in November’s meeting.
GDP – Q-on-Q growth
1.5%
1.0%
0.5%
0.0%
2007 Q1
2007 Q2
2007 Q3
2007 Q4
2008 Q1
2008 Q2
2008 Q3
2008 Q4
2009 Q1
2009 Q2
2009 Q3
2009 Q4
2010 Q1
2010 Q2
2010 Q3
2010 Q4
2011 Q1
2011 Q2
2011 Q3
2011 Q4
2012 Q1
2012 Q2
2012 Q3
2012 Q4
2013 Q1
2013 Q2
2013 Q3
2013 Q4
2014 Q1
2014 Q2
2014 Q3
2014 Q4
2015 Q1
2015 Q2
2015 Q3
2015 Q4
2016 Q1
2016 Q2
2016 Q3
2016 Q4
2017 Q1
2017 Q2
2017 Q3
2017 Q4
-0.5%
-1.0%
-1.5%
-2.0%
-2.5%
January’s uptick in wage growth coinciding with a significant cooling in CPI inflation should ensure that the 12
months of real wage falls we are experiencing should conclude once February’s wage figures are released by
the ONS in mid April. With CPI inflation expected to fall below the 2% target by the Autumn and
unemployment at historic lows, we would anticipate real wage rises to be a constant fixture in the foreseeable
future.
CPI Inflation & Average Earnings (y-on-y change)
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
Jan 17 Feb 17 Mar 17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18
Average Earnings (exc bonuses) CPI Inflation
Source: ONS / Oxford Economics / OBR
Cushman & Wakefield | Residential Research 1National Market
OVERVIEW
Nationally, prices continue to show signs of slight cooling, with annual rates of house price inflation for England
in January 2018 coming in at 4.6%, compared with 5.1% for January 2017. In the below scatter graphs we
plotted house price inflation against average home values for all English Local Authorities. The results show
that not only have rates of house price inflation largely fallen in-line with each other (see tighter bunching in
2018), but also that higher value areas have experienced significant cooling in the previous 12 months. In
January 2017, 89% of areas with an average sold price of over £600k were experiencing rising prices, whereas
this same figure for January 2018 is just 25%.
15.00%
January 2017
10.00%
5.00%
Annual rate of house price inflation
0.00%
£0 £200,000 £400,000 £600,000 £800,000 £1,000,000 £1,200,000 £1,400,000 £1,600,000
-5.00%
-10.00%
15.00%
January 2018
10.00%
5.00%
0.00%
£0 £200,000 £400,000 £600,000 £800,000 £1,000,000 £1,200,000 £1,400,000 £1,600,000
-5.00%
-10.00%
Average house price
TRANSACTIONS
Sales transactions continue to fall across the country, with month-on-month falls of up to 13% in some
Southern regions. The smallest falls were in the North where both the North East and West regions recorded
falls of 4% from the total number of sales in November 2017.
Sales Transactions
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
East East of London North East North West South East South West West Yorkshire and
Midlands England Midlands The Humber
Region
Sep-17 Oct-17 Nov-17
Sources: UK HPI
Cushman & Wakefield | Residential Research 2National Market (cont)
NEW HOMES
Provisional figures for 2017 show a significant increase in the number of English new homes delivered
during the year. In total 163,240 new homes were completed, comprising 134,110 private enterprise,
27,400 housing association, and 1,730 local authority built homes. The figure represents a 16% increase on
2016 levels and is the second largest annual total of new homes completed in 27 years, with only the 2007
total (176,640) exceeding it.
New Home Construction Completions
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
2013 2014 2015 2016 2017
Private Enterprise Housing Associations Local Authorities
Prices in the new homes market continue to rise at a faster rate than in the wider market, with the average
new home price in the North East region now just under 60% higher than homes in the second hand market.
This ‘new home premium’ is currently on average 38% throughout the county, ranging from the
aforementioned 60% in the North East, to just 12% in London.
RENTAL MARKETS
Excluding London and the North East where there has been no rental growth over the previous 12 months,
annual rates of growth are currently between 1.3-2.6% in all other regions. At present, and as with house
price inflation, the East Midlands leads the way in terms of rental growth, with +2.6% recorded in the year to
January 2018. Early year signs are of flattening/slight falls in the London and the South East markets, with
steady growth elsewhere.
Cushman & Wakefield Private Rental Index
(Jan 2017 = 100.00)
103.00
102.50
102.00
101.50
101.00
100.50
100.00
99.50
Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18
North East North West Yorkshire and The Humber
East Midlands West Midlands East
London South East South West
Sources: UK HPI / Department for Communities and Local Government
Cushman & Wakefield | Residential Research 3Prime London Markets
PRIME CENTRAL LONDON (PCL) Indicator
M-on-M Y-on-Y
(Jan-Feb) (Feb-Feb)
Sales volumes for Prime Central London held steady in
Sales
February, but remain considerably down on the same Transactions
+1.4% -27%
period a year earlier. Capital values fell for the second
consecutive month, falling by 0.3%, and now stand 2.9%
Capital Values -0.30% -2.91%
down for the 12 month period to February 2018. A
further fall in March’s data looks possible as once again,
Average sale
the sold-to-asking ‘discount’ failed to contract. +11bps (6.29%) +71bps
discount %
In the rental market, prices continued their strong start to
Rental Prices +0.37% +0.28%
the year, rising 0.4% in the month, and now stand
marginally above where they were in February 2017.
Average rent
Discounts also took a positive step, contracting 37 basis discount %
-37bps (3.75%) -61bps
points from January.
OUTER PRIME LONDON (OPL) M-on-M Y-on-Y
Indicator
(Jan-Feb) (Feb-Feb)
Unlike Prime Central London, transactions fell month-on-
month by 7%, with present levels 25% lower than during Sales
-7% -25%
Transactions
the same period in 2017. In another opposite to PCL,
capital values experienced some upward pressure, rising
Capital Values +0.26% -1.13%
0.3% during the month and are now just 1.1% down year-
on-year, although the sold-to-asking spread remains
stubbornly wide by historical standards at 5%. Average sale
+6bps (5.01%) +21bps
discount %
Outer Prime rental values recorded a slight uptick in
Rental Prices +0.26% -1.29%
February, but have largely flat-lined since the summer
when early 2017 falls levelled out. A period of stagnation
Average rent
looks the probable course for the remainder of H1, with +55bps (3.71%) +64bps
discount %
widening discounts pointing to a growth-less period.
Cushman & Wakefield Prime London Markets Index
(Feb 2017 = 100.00)
101.00
100.00
99.00
98.00
97.00
96.00
95.00
Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18
PCL Cap Values PCL Rents OPL Cap Values OPL Rents
Source: Cushman & Wakefield Research / LonRes
Area definitions for report: PCL = W1H, W1U, W1G, W1B, W1S, W1C, W1K, W1J, SW1A, SW1Y, SW1P, SW1H, SW1E, SW1W, SW1X, SW7, SW3, W8. OPL = NW3, NW8, W2, W9, W11, W14, SW6, SW10.
Cushman & Wakefield | Residential Research 4Mortgage Market
OVERVIEW
The number of new loans issued for house purchase took a dip in February, down 4.8% month-on-month and
11.3% year-on-year. However, despite the prospect of interest rate rises in the Spring, wage inflation above
the rate of CPI in the near future should lead to a slight recovery in lending moving forward.
Percentage of buyers using a mortgage
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
London East of West South East East Midlands North West Yorkshire and North East South West
England Midlands The Humber
Region
Percentage of home buyers
As highlighted in the above graph, over 75% of all home using a mortgage
purchasers in London are now using a mortgage. Within
this figure there is a distinct split at a borough-by-borough
level though, with only 45% of Prime Central London
buyers using a mortgage, compared with 86% in Barking
and Dagenham and 84% in Waltham Forest where
younger, less affluent buyer are common.
Of the 20 Local Authorities where cash buyers form the
majority, two are Prime London boroughs and 80% are
coastal areas. This highlights the significant influence
that international wealth, retirees and additional home
purchasers have on these types of areas.
The other end of the table (bottom 20 cash purchase
areas) is entirely dominated by less affluent London
boroughs and core commuter-belt areas. Between 80-
86% of all buyers in these areas use lending to assist
with their property purchase,
Sources: UK HPI / UK Finance / CML / ONS
Cushman & Wakefield | Residential Research 5Author
Lee Layton
Associate Director
Residential - Research
020 3296 4574
lee.layton@cushwake.com
Contacts
Candice Matthews Jonathan Stickells
International Partner Partner
Head of Residential Valuation & Advisory
020 3296 3988 020 7152 5271
candice.matthews@cushwake.com Jonathan.stickells@cushwake.com
Mike Bickerton Nick Jacks
Partner Partner
Residential – New Homes Valuation & Advisory
020 3296 3837 020 7152 5264
mike.bickerton@cushwake.com nick.jacks@cushwake.com
Jack Simmons Jonathan Godfrey
Partner Partner
Residential - Investment Valuation & Advisory
020 3296 4991 020 7152 5760
jack.simmons@cushwake.com jonathan.godfrey@cushwake.com
Fergus Jack Andrew Palmer
Partner Partner
Residential - Investment Residential - Land
020 3296 4494 020 3296 4033
fergus.jack@cushwake.com andrew.palmer@cushwake.com
Neil Batty Daniel McDonagh
Partner Partner
Residential – Head of International Residential - Land
020 3296 4303 020 3296 4674
neil.batty@cushwake.com daniel.mcdonagh@cushwake.com
Cushman & Wakefield | Residential Research 6About Cushman & Wakefield Cushman & Wakefield is a leading global real estate services firm that helps clients transform the way people work, shop, and live. The firm’s 43,000 employees in more than 60 countries provide deep local and global insights that create significant value for occupiers and investors around the world. Cushman & Wakefield is among the largest commercial real estate services firms with revenue of $5 billion across core services of agency leasing, asset services, capital markets, facility services (C&W Services), global occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation, and valuation & advisory. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter. Disclaimer This report should not be relied upon as a basis for entering into transactions without seeking specific, qualified, professional advice. Whilst facts have been rigorously checked, Cushman & Wakefield can take no responsibility for any damage or loss suffered as a result of any inadvertent inaccuracy within this report. Information contained herein should not, in whole or part, be published, reproduced or referred to without prior approval. Any such reproduction should be credited to Cushman & Wakefield. © Cushman & Wakefield April 2017 UK Headquarters 125 Old Broad Street London, EC2N 2BQ Phone: 020 3296 3000 To see a full list of all our publications please go to www.cushmanwakefield.com
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