Property & Construction Daily

The Property & Construction Daily provides a sector-specific comment from leading analyst Alastair Stewart. His daily perspective provides a round-up of market statements, news, economics and views from the property and construction sectors.

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January 29, 2024

BBOX | Economics – Home sales volumes and demand recover, Zoopla | News – Majority of housebuilders would prefer Labour

Company news

Tritax Big Box REIT (BBOX, 162p, £3,086m mkt cap)

Real estate investment trust investing in ‘big box’ logistics properties. FY (Dec) trading update.

Trading: UK lettings -42%, 22.1 million sq ft, with a further 11.1 million sq ft under offer at the year end. 2023 take up in-line with the pre-Covid average. Ready to occupy vacant space, 5.1% (2.0%). Prime headline rents +7.8% (FY 22, +12.9%). “The logistics real estate transaction market remains subdued; prime market yields for high quality rack-rented buildings with c.15 year unexpired lease terms and open market reviews are around 5.25%. Development – £7.8m of annual contracted rent added through 0.9 million sq ft of development lettings at a 6.7% yield on cost, with a further 0.9 million in solicitors’ hands. Maintaining long-term development guidance of 2-3 million sq ft per annum (£200 – £250m of capex) at a 6-8% yield on cost.

Outlook: “Looking forward, we remain confident in our ability to continue creating value, which is likely to be enhanced by an improving market backdrop. With record rental reversion in our portfolio, an attractive development pipeline and strong balance sheet, we are well positioned to deliver further income and capital growth.” FY results, 1 March.

Economic data

Housing market. Sales volumes have risen by 13% Y/Y since the start of the year while demand is up 12%, although 13% below the five-year average, according to the latest House Price Index report from Zoopla (below). All regions registered sales volumes higher than a year ago, most markedly in Yorkshire & Humber (+19%) and the West Midlands (+17%). House prices in December were unchanged for the second consecutive month, at £264k, and down only 0.8% Y/Y. The rise in activity “reflects a return of pent-up buyer demand following a weak second half of 2023. Many buyers delayed moving in the face of rising mortgage rates”, which have now fallen below 5%, according to Executive Director – Research, Richard Donnell. The report also noted the biggest rebound in buyer demand at the start of 2024. House prices have risen 13% in London since 2016 compared to 34% in the UK and 50% in Wales. Flat prices in London rose just 2% in this time. Rising incomes have pushed the affordability ratio down to (a still high) 13x average income multiple, from 15x in 2016. Zoopla has also issued a discussion of issues facing the UK ahead of the forthcoming election, How can new government policies help first-time buyers? It addresses current debate on long-term fixed rate loans and small-deposit mortgages. It suggests: most first-time buyers could afford to buy the home they rent – but banks’ stress-testing puts home ownership out of reach for many; longer term fixed mortgages have struggled to get off the ground in the UK and are more expensive in the long run; 1% deposits are not particularly attractive to first-time buyers and you’d likely need an high income to pass affordability tests in southern England, so unlikely to become a mass-market solution.

Housing demand

In other news …

Housing policies. Knight Frank’s Land Index & Housebuilder Survey, note released until later this week, reports the majority of housebuilders would prefer a Labour government, Property Industry Eye. The quarterly report questioned 50 housebuilders of all sizes and found that 70% of residential property developers would opt for a Labour government given the choice, as they believe this is the party most capable of enhancing the country’s land and development market. The report focused on Labour’s pledge to release low quality green belt land, dubbed ‘grey belt’ for development, and give local authorities increased powers to help meet their area’s housing need.

Viewpoint: No surprise there. My less scientific straw poll of a handful of CEOs and CFOs from some of the largest developers found a pretty much 100% view that Labour would be better for their industry – at least as much a reflection of perceived inadequacy and bowing to NIMBYism in the incumbent government than a glowing endorsement of the opposition.

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