Rising unemployment likely to inhibit the economy's recovery - UK Economy and Property Market Chart Book Q2 2020
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Sponsored by:
Economics
Rising unemployment likely to
inhibit the economy’s recovery
UK Economy and Property Market Chart Book
Q2 2020
rics.org/economics
UK Economy and Property Market Chart Book rics.org/economics 2 © RICS Economics 2020 Q2 2020
UK Economy and Property Market Chart Book rics.org/economics
Contents RICS Survey Release Dates
Frequency Survey Period Release date
Economic outlook................................................................................4 covering
UK Economy.........................................................................................5 Monthly RICS Hong Kong Residential Market Survey April 21-May-20
Housing Market....................................................................................6 Monthly RICS Portuguese Housing Market Survey April 29-May-20
Commercial Property Sector...............................................................7 Monthly RICS UK Residential Market Survey May 11-June-20
Construction Sector............................................................................8 Monthly RICS Hong Kong Residential Market Survey May 18-June-20
Monthly RICS Portuguese Housing Market Survey May 26-June-20
London..................................................................................................9
Monthly RICS UK Residential Market Survey June 16-July-20
Market Surveys and Reports..............................................................10
Monthly RICS Hong Kong Residential Market Survey June 21-July-20
Quarterly RICS UK Construction Market Survey Q2 2020 23-July-20
Quarterly RICS Global Commercial Property Market Survey Q2 2020 30-July-20
Quarterly RICS UK Commercial Property Market Survey Q2 2020 30-July-20
Monthly RICS Portuguese Housing Market Survey June 31-July-20
Quarterly RICS Global Construction Survey Q2 2020 06-Aug-20
Monthly RICS UK Residential Market Survey July 13-Aug-20
3 © RICS Economics 2020 Q2 2020UK Economy and Property Market Chart Book rics.org/economics
Economic Outlook Advanced economies are projected to see a much more sharper decline
in output relative to emerging markets and developed countries
Initial optimism that an easing of coming months. Global Output
lockdown measures would allow
the UK economy to fully recover Furthermore, business investment, 8
Annual % change
from a sharp, pandemic related, after remaining broadly flat last
contraction appears to fading. The year, is anticipated by the Bank to 6
Office for Budget Responsibility decline by 26% in 2020. Already,
(OBR) estimates that a three-month there are indications that business 4
lockdown may have led to 35% confidence has taken a significant
drop in real GDP in Q2 of this year, hit in survey data. In the latest 2
and although they feel output could Deloitte survey of Chief Financial
rise by a significant 27% in Q3 as Officers, 83% said they were 0
restrictions ease, this would still less optimistic about the financial
leave a substantial shortfall. prospects of the company, the -2 World
lowest in the survey’s twelve-year Advanced economies
-4
Likewise, more recent projections by history. Alongside this, appetite Emerging market and developing economies
the Bank of England point to a near to take greater risk on balance
-6
30% fall in real GDP in the first half sheets hit a new record low. These
of this year. In this scenario, even results suggest that a much more
-8
after allowing for an improvement cautious approach from business 2017 2018 2019 2020 2021
in H2, GDP for the whole of 2020 is likely to persist in the remainder Source: IMF
is anticipated to slip by 14%. The of the year. This also poses a
Bank thinks it will take until the longer-term fundamental challenge Oxford Economics expects UK output to begin to bounce back in H2
third quarter of 2021 for output to for policymakers as a prolonged 2020 but the risk of a more severe and prolonged recession remain high
return to the level it was prior to dip in investment will weigh on UK Output
the crisis. Other forecasters (IMF, productivity growth over time. 6
Quarterly % change
Oxford Economics) at least for now,
anticipate a similar pattern. RICS surveys point to a sharp
deterioration in market sentiment 4
The economy could remain
subdued for a while Feedback from the latest round 2
of RICS surveys unsurprisingly
The path to economic recovery points to a sharp deterioration in
0
is likely to be heavily influenced sentiment. The results from the
by developments in the labour Q1 2020 UK Commercial Property
market. On that front, the Bank Survey show the crisis has -2
of England estimates, in spite of accelerated the downturn in retail. Baseline
the government’s efforts, that the CBRE data shows capital values -4
unemployment rate could increase posted monthly declines of 3% and Downside Scenario
from under 4% in 2019 to above 9% 2% in March and April respectively -6
this year, a much more elevated at the all-sector level. Within this,
level than during the aftermath of although the retail sector suffered -8
the 2008 global financial crisis. the steepest declines, values
This in turn is likely to keep a lid also slipped across the office and -10
on household consumption in the industrial sectors. 2020 2021 2022 2023
Source: Oxford Economics
4 © RICS Economics 2020 Q2 2020UK Economy and Property Market Chart Book rics.org/economics
1) Government debt is envisaged to reach almost 95% of GDP 2) Retail sales saw a sharp decline in March
Public Sector Net Debt Retail Sales
100 8
% of GDP Annual % change
95
6
90
4
85
2
80
75 0
70 Budget 2020 Forecast -2
Coronavirus Reference Scenario
65
-4
60
-6
55
50 -8
2017 2018 2019 2020 2021 2022 2023 2024 2025 2006 2008 2010 2012 2014 2016 2018 2020
Source: OBR Source: ONS
UK Economy
The Office of Budget Responsibility this year compared to the March Meanwhile, ONS’s data points to Public sector net
(OBR) in its Coronavirus Reference Budget forecast. Chart 1 shows that retail sales collapsing in March
Scenario estimates that the this will take public sector net debt to following the closure of non- borrowing is expected
significant fall in UK output, and the just under 95% of GDP in 2020/21. essential shops in the final week of to rise substantially
fiscal policy measures undertaken to the month. Sales fell by 6% on
mitigate the impact on the economy, Crucially, government debt is annual basis, the largest fall since this year coming at
will lead to government borrowing projected to remain high in records began (Chart 4). It is likely £233 billion more than
rising significantly in the near term. subsequent years; above 90% of that April’s data will show a much
GDP until at least 2024. The risk is bigger decline. Indeed Q2 is likely to what the OBR’s
The OBR’s judgement is that public that the government may have to see a significant drop in consumer projected in its March
sector net borrowing is likely to consider raising taxes or decreasing spending and GDP. Further out,
reach £298 billion this year. This is expenditure in the medium term to retail sales could start to recover in Budget.
£233 billion more than what the lower it’s debt burden, which in turn Q3 as the government begins to
OBR anticipated in the March could constrain the economic ease restrictions in the coming
Budget. In this case, net debt is recovery further out. weeks.
projected to be £399 billion higher
5 © RICS Economics 2020 Q2 2020UK Economy and Property Market Chart Book rics.org/economics
3) Average mortgage lending rates have dipped further 4) Prices and rents still seen rising over the medium term
Average Mortgage Interest Rates RICS Price and Rent Expectations
8 7 Average annual expected change
% 5 Year Rents*
6 5 year Prices*
12 Month Rents*
7
5 12 Month Prices*
6 4
3
5
2
4 1
0
3
-1
2 -2
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2013 2014 2015 2016 2017 2018 2019 2020
Source: Bank of England * 3 month rolling average Source: RICS
Housing Market
Government measures introduced though a sharp turnaround still rents are deeply negative.
to combat the spread of the seems unlikely. Meanwhile, average Mortgage approvals
That said, sentiment over the
coronavirus required estate agents mortgage interest rates have dipped
twelve month horizon is somewhat slipped materially in
to close their offices in late March a little further near the end of Q1 in
and in April which led to activity response to the Bank of England’s less downbeat. Chart 4 shows that March
across the housing market grinding decision to cut interest rates to a contributors anticipate a modest fall
to a halt. Evidence of this decline in record low of 0.1% (Chart 3). in prices in the coming year while
momentum was apparent in the the outlook for rents is now broadly In the RICS survey,
March mortgage approval statistics. The latest results to the RICS flat. Interestingly, medium term
Approvals for house purchases fell Residential Market Survey point to a projections are more resilient with prices and rents are
by 24% over the month to 56,200, sharp deterioration in sentiment with contributors expecting average seen falling in the
the lowest in seven years. With key activity indicators such as new annual growth in prices and rents to
government restrictions now buyer enquiries and newly agreed average around 2.5% per annum coming months
loosened, activity could begin to sales declining significantly. over the next five years.
pick-up in the coming months, Unsurprisingly, average three month
expectations for sales, prices, and
6 © RICS Economics 2020 Q2 2020UK Economy and Property Market Chart Book rics.org/economics
5) Share prices of Intu and Hammerson have collapsed 6) Rental values are seen falling substantially in the retail sector
UK REITs RICS Average 12 Month Rent Expectations
80 Annual % change 6
Average annual % change
Q4 2019
60 4
Q1 2020
40 2
20 0
0 -2
-20 -4
-40 -6
-60 Intu Share Price -8
Hammerson Share Price
-80 -10
-100 -12
-120 -14
2008 2010 2012 2014 2016 2018 2020 Average Prime Office Sec Office Prime Sec Industrial Prime Retail Sec Retail
Source: London Stock Exchange
Industrial Source: RICS
Commercial Property Sector
According to CBRE data, capital the government to combat the results, 64% of respondents view The current crisis has
values fell by 7.6% on an annual spread of the virus have put further the market to be in the downturn
basis in April. However, this was pressure on retail. This is clearly phase of the property cycle. put further pressure
predominantly driven by a 18% drop visible in official data by CBRE as Average twelve month rental value on the retail portion of
in retail commercial property prices. well as in the recent performance of projections have turned negative
In comparison, capital values fell Retail Reits. across virtually all sectors. The the commercial
only modestly by 1.2% in the office weakest projections are for property market
sector and were more or less stable Intu and Hammerson, UK Reits that secondary retail sites with rents
across the industrial segment. specialise in retail, had already seen seen falling by almost 12%. What’s
their share prices drop significantly more, the outlook is not much
Even before the Covid-19 crisis hit, in the past few years and, more better for prime retail properties. At 64% of respondents in
the retail sector was looking recently, prices have plunged further
vulnerable in the face of a structural (as shown in Chart 5).
the other end of the spectrum, the RICS survey view
prime industrial rents, for the time
shift towards online shopping. being at least, are expected to rise the market to be in a
Significantly, it seems that social In the RICS Q1 2020 UK
distancing measures enacted by Commercial Property Market survey marginally in the coming year downturn
(shown in Chart 6).
7 © RICS Economics 2020 Q2 2020UK Economy and Property Market Chart Book rics.org/economics
7) Profit margins are expected to contract 8) Rail and road projects are expected to rise firmly
12 Month Expectations Infrastructure Workloads -12 Month Expectations
100 35
Net balance % % of respondents
80
30
60
25
40
20 20
0
15
-20
Workloads
10
-40 Employment
-60 Profit Margins 5
-80
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 0
Energy Habours Water & Sewage Roads Rail Communications
Source: RICS
Construction Sector
ONS’s preliminary estimates show weaker towards the end of the road and energy components Feedback to the RICS
that after rising in 2019, survey period as stricter lockdown expected to see the strongest
construction output declined by 3% measures came into force. In growth in output in the coming survey shows market
on a year on year basis in the first addition, feedback points to a drop in twelve months (Chart 8). This could confidence has taken
quarter of 2020 owing to market confidence with contributors be in response to a substantial rise
government restrictions imposed in anticipating workloads, employment in investment into transport a hit
March. and profit margins to decline in the infrastructure promised by the
coming year (Chart 7). On the back government in the Budget.
In the RICS Q1 2020 UK of this, participants expressed the However, whether all of these Infrastructure
Construction market survey, the
headline workloads indicator
intention to decrease investment on projects will be able to materialise workloads still seen
fixed assets, equipment and is open to question given that
slipped into negative territory for the software. government borrowing and net debt rising in the coming
first time in eight years with activity
reported to have fallen in all market Having said that, contributors still
are expected to increase year
significantly this year in
segments. Interestingly, we noted appear to be upbeat with regards to consequence to the sizeable fiscal
that sentiment turned progressively infrastructure workloads with the rail, spending during the pandemic.
8 © RICS Economics 2020 Q2 2020UK Economy and Property Market Chart Book rics.org/economics
9) Average weekly footfall plummeted in Q1 2020 10) London office capital values look likely to remain stable
West End Footfall Weekly Average (Y/Y change) London Office Investment Enquiries
100 40
%
0
80
30
-2
60
20
-4
40
-6 10
20
-8
0 0
-10 -20
-10
-12 -40
-20
-14 -60 RICS London Office Investment Enquiries adv. 3q (LHS)
CBRE Central London Offices Capital Values (RHS) -30
-16 -80
-18 -100 -40
Q1 2019 Q4 2020 Q1 2020 2006 2008 2010 2012 2014 2016 2018 2020
Source: Savills Source: CBRE, RICS
London
In the face of changing consumer enacted by the government in March volumes in April were 39% down on
spending habits, feedback to the has exacerbated this trend, with the the same point last year as Prime Central London
RICS UK Commercial Property year on year decline in footfall investors adopt a wait and see retail rents have
survey has pointed to diminishing coming in at -17% in Q1 2020 approach.
appetite for retail sites across compared to -3.3% in Q4 2019 slipped sharply
Central London in the last three (Chart 9). Alongside this, Savills Feedback to the RICS commercial
years. On the back of this, estimates that prime headline rents survey suggests that investor
availability of vacant retail in Central London have fallen by appetite for London office space In the RICS survey,
properties has reportedly risen 8.4% on annual basis in Q1, an has remained relatively flat in the investor demand for
sharply putting further downward acceleration from a decline of 5.8% last four quarters. On past form,
pressure on rents. in the previous quarter. this points to a broadly stable trend London offices is
in London office capital values more or less flat
Savills research indicates that Overall, investment across the (Chart 10). Nevertheless, given the
average weekly footfall across the London commercial property market current economic climate, the risks
West End fell over the course of has slipped in the past few months. to this are firmly skewed to the
2019. It looks like the lockdown Savills estimates that transactional downside.
9 © RICS Economics 2020 Q2 2020UK Economy and Property Market Chart Book rics.org/economics 10 © RICS Economics 2020 Q2 2020
UK Property Market Chart Book rics.org/economics
Market Surveys & Reports The Economics Team
Why the RICS surveys?
Kisa Zehra, Economist
“The RICS poll - considered one of the most reliable guides to movements in house prices.” Financial Times
kzehra@rics.org +44 (0)20 7695 1675
“The RICS survey - the best short-term lead indicator of house prices and activity in our view.” Goldman Sachs
Simon Rubinsohn, Chief Economist
“The RICS Survey has been a good leading indicator for the direction of and inflection points in the IPD index,
and therefore the UK commercial property market overall.” Morgan Stanley srubinsohn@rics.org +44 (0)20 7334 3774
“The RICS Commercial Property Survey is an excellent predictor of future IPD total returns.” North Row Capital
Jeffrey Matsu, Senior Economist
jmatsu@rics.org +44 (0)20 76971644
Download RICS Economic market surveys and reports at www.rics.org/economics
• UK Residential Market Survey (monthly) Sean Ellison, Senior Economist
www.rics.org/housingmarketsurvey
• UK Construction Market Survey (quarterly) sellison@rics.org +65 68128179
www.rics.org/constructionmarketsurvey
• UK Commercial Market Survey (quarterly) Tarrant Parsons, Economist
www.rics.org/commercialmarketsurvey
• UK Rural Market Survey (semi-annual) tparsons@rics.org + 44 (0)20 7695 1585
www.rics.org/ruralmarketsurvey
• Global Commercial Market Monitor (quarterly) Janet Guilfoyle, Surveys Administrator
www.rics.org/globalpropertymonitor
• RICS / Ci Portuguese Housing Market Survey (monthly) jguilfoyle@rics.org +44 (0) 20 7334 3890
www.rics.org/portuguesemarketsurvey
• Hong Kong Residential Market Survey (monthly)
http://www.rics.org/hong-kong-residential-market-survey
11 © RICS Economics 2020 Q2 2020Confidence through professional standards
RICS promotes and enforces the highest professional qualifications and standards We believe that standards underpin effective markets. With up to seventy per cent of the
in the development and management of land, real estate, construction and world’s wealth bound up in land and real estate, our sector is vital to economic development,
helping to support stable, sustainable investment and growth around the globe.
infrastructure. Our name promises the consistent delivery of standards – bringing
With offices covering the major political and financial centres of the world, our market
confidence to the markets we serve. presence means we are ideally placed to influence policy and embed professional standards.
We accredit 118,000 professionals and any individual or firm registered with RICS is We work at a cross-governmental level, delivering international standards that will support
subject to our quality assurance. Their expertise covers property, asset valuation and real a safe and vibrant marketplace in land, real estate, construction and infrastructure, for the
estate management; the costing and leadership of construction projects; the development benefit of all.
of infrastructure; and the management of natural resources, such as mining, farms
We are proud of our reputation and we guard it fiercely, so clients who work with an RICS
and woodland. From environmental assessments and building controls to negotiating
professional can have confidence in the quality and ethics of the services they receive.
land rights in an emerging economy; if our members are involved the same professional
standards and ethics apply.
United Kingdom RICS HQ Ireland Europe Middle East Africa Americas
Parliament Square, London SW1P 3AD 38 Merrion Square, Dublin 2, (excluding UK and Ireland) Office G14, Block 3, PO Box 3400, Witkoppen 2068, One Grand Central Place,
United Kingdom Ireland Rue Ducale 67, Knowledge Village, South Africa 60 East 42nd Street, Suite 2810,
t +44 (0)24 7686 8555 t +353 1 644 5500 1000 Brussels, Belgium Dubai, United Arab Emirates t +27 11 467 2857 New York 10165 – 2811, USA
f +44 (0)20 7334 3811 f +353 1 661 1797 t +32 2 733 10 19 t +971 4 446 2808 f +27 86 514 0655 t +1 212 847 7400
contactrics@rics.org ricsireland@rics.org f +32 2 742 97 48 f +971 4 427 2498 ricsafrica@rics.org f +1 212 847 7401
Media enquiries pressoffice@rics.org ricseurope@rics.org ricsmenea@rics.org ricsamericas@rics.org
South America Oceania North Asia ASEAN Japan South Asia
Rua Maranhão, 584 – cj 104, Suite 1, Level 9, 3707 Hopewell Centre, 10 Anson Road, Level 14 Hibiya Central Building, 48 & 49 Centrum Plaza,
São Paulo – SP, Brasil 1 Castlereagh Street, 183 Queen’s Road East #06-22 International Plaza, 1-2-9 Nishi Shimbashi Minato-Ku, Sector Road, Sector 53,
t +55 11 2925 0068 Sydney NSW 2000. Australia Wanchai, Hong Kong Singapore 079903 Tokyo 105-0003, Japan Gurgaon – 122002, India
ricsbrasil@rics.org t +61 2 9216 2333 t +852 2537 7117 t +65 6635 4242 t +81 3 5532 8813 t +91 124 459 5400
f +61 2 9232 5591 f +852 2537 2756 f +65 6635 4244 f +81 3 5532 8814 f +91 124 459 5402
info@rics.org ricsasia@rics.org ricssingapore@rics.org ricsjapan@rics.org ricsindia@rics.org
rics.orgYou can also read
