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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May 9, 2024

BBY, LDN, SOHO | Economics – House sales cool in April while lettings market nears equilibrium, RICS

Company news

Balfour Beatty (BBY, 382p, £2,025m mkt cap)

UK, US and Hong Kong construction and infrastructure group. AGM.

Guidance: “The group’s trading over the period has been in line with expectations and the Board continues to expect an increase in profit from operations from its earnings-based businesses and an increase in group earnings in 2024”. Q1 (Mar) 24 ave monthly closing net cash, £756m (FY 23, £700m; closing, £842m). FY 24 average cash expected to be “roughly in line” with FY 23, reflecting an expected working capital outflow, and for the £100m share buyback to be completed by the end of the year, with approximately £50m completed to date.

Derwent London (DLN, 2,218p, £2,491m)

Real estate investment trust owning commercial portfolio predominantly in central London. Q1 (Mar) business update.

Guidance: “We are seeing further strengthening in occupational demand for our well-located, design-led buildings. Rental growth has increased as demonstrated by our leasing performance against ERV. As part of our strategy of capital recycling”.

Trading: Portfolio – New leases totalling £5.4m have been signed since the start of 2024, with a further £4.3m under offer. Q1 lettings, £2.4m at an average 9.2% above December 2023 ERV, with activity across the portfolio; Q2 to date, £3.0m, including the 17,100 sq ft pre-let to Cushman & Wakefield at 25 Baker Street W1 on a 15-year lease at a rent of £1.8m announced today. EPRA vacancy rate, 3.7% at 31 March 2024 (31 Dec, 4.0%); 58% of space available to occupy at December 2023 has either been leased or is under offer “with good ongoing interest in the balance”. Development –25 Baker Street W1 progressing with façade works nearing completion; now 84% pre-let. Contracts have been exchanged on nine of the 41 private residential units at £54.0m, “well ahead” of the appraisal value. Contracts exchanged in April to sell Turnmill EC1 for £77.4m (before costs), a small premium to December 2023 book value.

Finances: EPRA LTV 28.2% (31 Dec, 27.9%); interest cover 4.1x (2023, 4.1x).

Triple Point Social Housing REIT (SOHO, 61p, £239m)

Real estate investment trust investing primarily in newly developed social housing assets, with a focus on supported housing. Independent review of investment management arrangements. “The Board of the Company announces that, as part of its commitment to delivering value to shareholders, and in conjunction with Triple Point Investment Management LLP, the investment manager, it is actively reviewing the terms of the investment management arrangements, with the objective of aligning these further with the interests of shareholders. As part of this process, the Board will be undertaking an independent benchmarking review of market precedents and engaging with other market participants to ensure that any changes made to the current terms of the investment management arrangements reflect best practice and deliver enhanced value for shareholders. The independent review will commence immediately and is expected to be completed within three months, with the outcome being reported to the market in due course. The Board and the investment manager remain committed to exploring all avenues in order to deliver further value to shareholders and the Company’s stakeholders as a whole”.

Economic data

Housing market. Buyer enquiries dipped in April, while new instructions by vendors accelerated and prices were little changed, according to the latest Residential Market Survey from the RICS. New buyer enquiries over the month (below, left) dipped to a net balance (% of respondents recording rise minus those registering a fall) of -1, seasonally adjusted, from +6 in March, but compared to -46 in July. However, newly agreed sales (below, right) – registered further along the sales process – ticked up from -5 to +5. Meanwhile, vendor enquiries, which had been declining for much of the past decade, rose from +13 to +25, the fifth consecutive monthly increase. Prices continued to decline but very slowly, the second consecutive month at -5, compared to -66 in September; price expectations became slightly more negative, 13 from -10 in March. The Lettings survey indicated approaching equilibrium in what had been an over-heating rental market. Tenant demand slipped to +12 in the three months to April, from +28 in the previous three months and a high of +61 in Q1 22. Landlord instructions saw the 15th consecutive quarter of decline, -13, from -28 in Q3 23. A healthy net +33 expected rents to continue rising over the next three months, but the lowest since the start of 2021.

Viewpoint: The ‘front end’ of the sales process, buyer enquiries has been slowing after a tentative recovery, probably in response to the recent rises in fixed-rate mortgages, with Rightmove reporting the average five-year rate rising above 5% for the first time since January. (This possibly has reflected higher demand seen in BoE mortgages approvals, as well as swap rates). Nobody seems to expect the Bank to cut rates today (midday) any more, but the tone as to future decision making will be all-important. A more dovish tone could see major lenders becoming more expansive in the months ahead.

New buyer enquiries
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