Perfect Vision or Property Markets Blurred Uncertainty? - into 20/20
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Property Markets
into 20/20:
Perfect Vision or
Blurred Uncertainty?
Spring
Spring 2019
Dr Angus McIntosh
2019
Real Estate Forecasting Limited
UK Rental Value Growth, %pa 2014-2018
Industrial & Logistics fastest growth
?
Source: Real Estate Forecasting: End 2018
Real Estate Forecasting Limited
Three main issues
Economic policy & political challenges
Climate Change & extreme weather events
Technology Driven Authoritarianism
(Big Brother is Watching You, but who controls big brother?)
Real Estate Forecasting Limited
Property Markets into 20/20:
Perfect Vision or Blurred Uncertainty?
Economics: the “dismal” science
Keynes & after
Planet earth: measuring the pollution of buildings
Where we live?
Buying goods, and food & beverage
Industry, logistics & robots
Offices & bots
Invest: to stick or twist?
Real Estate Forecasting Limited
Economic growth 2013-2019
UK GDP growth now below USA & EU
one of worst in G7 & G20 countries.
Its not just BREXIT which has caused this.
UK
Source: The Economist & IMF Spring 2019
Real Estate Forecasting Limited
Unemployment amazingly low – more part-time, self “gig”
employment, internships, zero hours. Fewer PAYE = lower taxes.
Property taxation unlikely to fall; Government needs to income.
Source: BBC March 2019 Real Estate Forecasting Limited
Productivity one of lowest in Europe –
people are cheap; investment risky & costly.
Public AND Private long-term investment - extremely low.
Source: BBC March 2019 Real Estate Forecasting Limited
Real wages now rising faster than Inflation
but still much lower than in 2008,
impact on retail spending and retail property
Real Estate Forecasting Limited
Real Estate Forecasting Limited
UK Budget Deficit:% 2016 & 2019
EU Maastricht Treaty target - 3%
Euro Area USA UK China
Real Estate Forecasting LimitedLong Term Government Debt
BUT Private Debt much higher
UK 2008 (was below 60%) & now in 2019 (was over 100%)
EU Maastricht Treaty target 60%
Real Estate Forecasting LimitedBREXIT
- We want to be EITHER “Just In or Just Out” …….
- Most voters & MPs did not know leaving the EU (Article 50)
was the same as leaving the EEA (European Economic Area –
Single Market)
- 70% of sitting MPs are against leaving the EU
Anthony Hilton, Evening Standard …..BEFORE REFERENDUM!
Hindered Economic Growth & Held Back Interest Rate Rises
London’s finance centre will NOT move to EU, but go to New
York or Singapore
Real Estate Forecasting LimitedGlobal Economy
• IMF reform “ignored” 10 years after Lehman Bros, worry over world Debt.
• German economy slowest growth in 5 years and Italian budget now more
in-line with EU request.
• USA & China - Abandon Trade arrangements slowing down world
economic output…..“Global Trade Chaos” FT
• Trump & the Big Wall “playing with fire” Hamish McRae, Evening Standard
• Interest rates rising? – USA, UK, EU ? Turkey, Argentina, Italy…..
• Technology - FANGS (Facebook, Amazon, Netflix, Google) need a review?
Tim-Berners Lee 30 years on. Regulate? News Corp. (Rupert Murdock) claims
they have too much monopoly power !
Real Estate Forecasting LimitedThe Global Economy
• Reduced influence of the United Nations.
• Reduced power of International Criminal Court.
• Restricted expenditure on the North Atlantic Treaty Organization
• USA not signed the Paris Climate Change Protocol
• Gold prices are up …………… reflecting Global Instability
• Nationalism has impact on Freedom, Free Speech, Democracy &
LOWER ECONOMIC OUTPUT
• “we must prepare now for the likelihood of a recession”
Lawrence Summers, former US Treasury secretary
Real Estate Forecasting LimitedBack to a Keynesian economy
OR more Monetary Policy?
- How do we get “Better Scandinavia quality public services, with an American low
taxation & an expanded private sector”?
Paul Johnson –Economist @ IFS
- “40 year experiment not working …….. Controlling economy via Central Banks & Interest
Rates ”
Martin Wolf FT
- Public debt almost under control, but Private debt out of control – an all time high.
- Privatization very mixed success – EG: Carillion, Public Housing deficit, Rail Franchising.
- Following the Global Financial Crisis in 2008 - World Real Interest Rates now NEGATIVE
………………… have been been falling steadily since 1980s.
Real Estate Forecasting LimitedBack to a Keynesian economy
OR more Monetary Policy?
NEW IDEAS
Modern Monetary Policy
- Not worry about budget deficits
- Finance Ministries (Governments) should take more control
- Not UN but UNDER-employment more important
- Use Regulations, Controls & Taxation ….
to encourage long-term investment.
Real Estate Forecasting LimitedA “two speed” economy: why subsidized?
Golden Diamond of the North v South East:
UNIVERSITIES
Bolton, Bradford,
Chester, Durham,
Huddersfield, Hull,
Keele, Lancaster, Leeds,
Liverpool, Manchester,
Newcastle, Salford,
Stafford, York
300,000 migrated out.
Shortage of
qualified employees.
Real Estate Forecasting LimitedLiverpool, Leeds & Manchester are in the
lead!......... BUT when will HS2 arrive?
When will the train
arrive into Question:
Liverpool? Invest in Cross Rail 2
in congested South East
Railways are behind OR
the “pacer” trains. Northern Rail system?
Real Estate Forecasting LimitedProperty Markets into 20/20:
Perfect Vision or Blurred Uncertainty?
Planet earth: measuring the
pollution of buildings
Real Estate Forecasting LimitedProperty Markets into 20/20
Climate Change:
In addition to BREAM,
EPCs, DECs, MEES, ESOS
and more ……….
An example – how to
prepare for 50mm of
rain in 30 mins!
Real Estate Forecasting LimitedProperty Markets into 20/20
(Most efficient Office: London West End wins)
Office Type Whole GDP Per Ratio
Life person
BCO PROJECT:
Kg. CO2 Economic OFFICE
Sq.M.
output to the
whole-life
CBD Central London Air-Con. 12,518K £4,500K 27
carbon pollution
CBD Regional Air-Con. 10,758K £1,800K 57 (including
Regional City NON Air-Con. 9,303K £1,260K 67
transport)
footprint.
Out of Town Business Parks 13,674K £1,629K 75
Air-Con.
Real Estate Forecasting LimitedProperty Markets into 20/20
(Most efficient Retail : Rail stations win!)
Retail Unit Total Econ. Ratio
Whole Life Output REVO PROJECT:
A1/2Food Comb. Trans 70000 600000 8.5 Economic output
A3 Combined Trans. 15600 72000 4.5 (sales)
A1/2 Food Home Del. 61000 150000 2.4 to
A1/2 O of T Food 313000 600000 1.9
A1/2 Click & Coll. Food 350000 600000 1.7
whole-life
WORST carbon pollution
A1/2 High St Non-Food 1468000 480000 0.33 (including
A1/2 Secondary H St. 379000 100000 0.26 transport)
A3 Out of Town 258000 60000 0.23 footprint.
A1/2 High Street Food 1430000 300000 0.21 (nos. rounded up)
A3 High Street 1155000 72000 0.06
Real Estate Forecasting LimitedProperty Markets into 20/20:
Perfect Vision or Blurred Uncertainty?
Where we live?
Real Estate Forecasting LimitedProperty Markets into 20/20:
“ Wages, Home ownership, Pension Wealth and Old Age….”
the four challenges for the “Millennials” The Daily Telegraph
“Housing outlook worst for 20 years” BBC/RICS
Real Estate Forecasting LimitedOld wealthy folk
Young poor folk - tenants
Age 18- 35-49 50-64 65+
House of
34 Commons
% of report
Populatio “250,000 new
n homes pa to
28 25 24 23 meet rising
% of demand”
Househol 500,000 pa
d wealth needed to
make up 35
6 19 33 43 year back-log.
Real Estate Forecasting LimitedProperty Markets into 20/20:
Section 106 Agreements, CILs and cash strapped Housing Associations not met needs of
social housing.
In 40 years, sold 306,0000 but only built 62,000. Churchill/Macmillan in 1950s & early years
of Wilson built 400,000 pa.
Londoners salaries x 17 & UK x 7 years to save for a deposit.
Chartered Institute for Housing (CIH) report found, the Help-to-Buy scheme “a nonsense.”
£8bn. pa subsidises Private Housing construction, less than £2bn. to Social Housing.
£15bn. assist Social Housing rents.
ALTERNATIVE INVESTMENT CLASS
Living Investment Income Generating Portfolios:
Hotels, Private Apartments, Social Housing, Care Homes, Student Housing
& Co-Living Apartments
Real Estate Forecasting LimitedProperty Markets into 20/20:
Perfect Vision or Blurred Uncertainty?
Buying goods, and food & beverage
Real Estate Forecasting LimitedThe Retail Rout & Technology
The result of a planning policy of “Sequential Testing”?
What is a town centre for?
Real Estate Forecasting LimitedThe Retail Rout & Technology
• Started with GFC in 2008. Closures or downsizing portfolios.
• Openings or expanding include:
….JLP, Lidl, Aldi, The Range, Home Bargains, Primark, JD Sports, TK Maxx, ASAO,
Farfetch, The Hut Group, Harrods, Burberry, H & M.
• Clicks to Bricks include:
……….Amazon owners of Whole Foods, Fatfetch, Habitat.
• Reinvent Towns: Morecambe, Whitley Bay, Altrincham.
Real Estate Forecasting LimitedProperty Markets into 20/20:
Perfect Vision or Blurred Uncertainty?
Industry, logistics & robots
Real Estate Forecasting LimitedIndustrial, Logistics, Technology & Robots
• Industrial output has been
at a 10 years high BUT….Recent
figures showed growth
suddenly but hit 25-month low,
lowest since 2016
• Balance of Payments
“disaster” but only 12% of
economy
• Productivity of North has
improved !
• Global slowdown – where
next?
Real Estate Forecasting LimitedIndustrial, Logistics, Technology & Robots
• Has on-line Retail Rout plateaued ?
• Fulfilment centres dominated by Robots.
• Industrial “employment” increasingly in
creating and managing robots.
• Core Distribution Area - Milton Keynes,
Peterborough, Doncaster, Manchester,
Stafford……..PLUS Last mile logistics
Real Estate Forecasting LimitedProperty Markets into 20/20:
Perfect Vision or Blurred Uncertainty?
Offices & bots
Real Estate Forecasting LimitedOffices & bots
Major office occupiers for the
Staff & world of flexible working:
Skills levels: WeWork, BizWork, Office Group,
HR management Workspace Group, Regus
TMT & FAANGS Sector
dominate take up
“Company’s assets are the people “
Property location, costs
Information &
& design
Communication
Technology
& off-site working
Real Estate Forecasting LimitedOffices & bots
TOP LEFT
WWF Woking:
Employees
encouraged not
to come to
work.
Wednesday is a
challenge
RIGHT
WeWork
Aldwych, London
LOWER LEFT
Mixed Use,
Co-Working.
Brick Lane,
London
Real Estate Forecasting LimitedProperty Markets into 20/20:
Perfect Vision or Blurred Uncertainty?
Invest: to stick or twist?
Real Estate Forecasting LimitedUK Rental Value Growth, %pa
Industrial & Logistics rents growth fastest
Source: Real Estate Forecasting Spring 2019
Real Estate Forecasting LimitedUK Commercial Property since 2016
Total Returns (Income + Capital Growth)
Remains ahead of inflation – just? Below zero capital growth till 2021
Source: Real Estate Forecasting Spring 2019
Real Estate Forecasting LimitedInvestment Markets: Total Returns (Rent &
Capital Change) % pa 2016 to Spring 2019.
Impact of Inflation, Interest Rates, Value of £ & Equities?
Source: Real Estate Forecasting Spring 2019
Real Estate Forecasting LimitedUK Investment Yields - % pa: 1918-2019
initial property 5.81%, equity dividend 4.46% & long-dated gilts 1.67%
Comfortable Yield Risk Premium between Property & Gilts
From the introduction of Monetary Policy Globally in 1980s, Gilts yield has steadily fallen.
In 2019 it’s now below inflation.
Source: Real Estate Forecasting Spring 2019
Real Estate Forecasting LimitedRepeat of “The Big Short” chaos of GFC?
Current property investors
• Domestic Institutions including debt.
• Private investors
• Overseas “Global” Investors
(London & UK, Hong Kong, Paris)
• Local Authorities:
some are “rubbish deals” - Lord Matthew Oakshott
“Active fund managers have abandoned the long term”
Re Equity/Gilt markets - Anthony Hilton, Evening Standards
Real Estate Forecasting LimitedProperty Markets
into 20/20:
Perfect Vision or
Blurred Uncertainty?
Spring
Spring 2019
Dr Angus McIntosh
2019
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