Commercial real estate outlook darkens – RICS
FOXT, PURP, ALU, SDY | Commercial real estate outlook darkens – RICS
Foxtons Group (FOXT, 29p, £89m mkt cap)
High profile London estate and lettings agent. Q3 (Sep) trading update. Guidance: “The strength of our performance in the third quarter gives us confidence in the outlook for the full year. Accordingly, we now expect to deliver a result for the 2022 financial year ahead of our previous expectations”. Trading: Q3 rev +25% Y/Y, £43.8m (Lettings +18%, £29.2m; Sales +44%, £11.9m; Financial services +37%, £2.8m). Increase in Lettings comprised £3.1m organic growth and £1.3m from the acquisitions of Gordon & Co and Stones Residential in May 2022. Organic growth was driven by a 23% increase in average revenue per transaction, as higher average rental prices and longer tenancies offset a 9% decrease in lettings volumes. Sales growth reflected a 39% increase in volumes and 2% increase in average revenue per transaction. Higher volumes were driven by a more normalised market in Q3 2022, in comparison to the prior year which was impacted by the pull forward effect of the 30 June 2021 stamp duty deadline. The increase in average revenue per transaction reflects early progress in targeting higher value properties. At the end of Q3, the under offer pipeline was 15% higher Y/Y. Sales revenue for the nine months ended 30 September 2022 was £32.7m, down £0.8m, or 2% on the prior year. “Despite a robust quarter and growth in the pipeline, we enter Q4 with a less certain market backdrop and are alert to the macroeconomic and political challenges which may impact conversion to revenue in Q4”.
Purplebricks Group (PURP, 14p, £41m)
Hybrid on-line estate agent, supported by local property agents (LPAs). Directorate change. Dominique Highfield appointed CFO with effect from 1 November. She has 15 years’ experience in finance including at Sainsbury’s, Amazon and, most recently, as Director of Finance at Pentland Brands, the large privately-owned business housing well-known retail brands. Steve Long will step down from his role as CFO and the Board with effect from 1 November and will remain with the business until the end of November to support the transition.
The Alumasc Group (ALU, 140p, £51m)
Sustainable building products, systems and solutions group. AGM. Outlook: “Following the strong performance in the year ended 30 June, and the disposal of Levolux on 26 August, trading in our continuing operations over the first quarter of the current financial year has remained robust. Both volumes and margins in our continuing operations have been strong, and ahead of the corresponding prior year period. Transportation costs and material prices are stabilising, although exchange rates and energy prices remain volatile and have the potential to impact costs further. Our balance sheet position remains strong, and the business is well funded, with a low level of net debt and a pension deficit which has reduced materially over the last five years. We believe the growing demand from our customers for environmental solutions, our portfolio of strong brands and sustainable building materials, together with the agility of our businesses, provide resilience against any potential adverse trading conditions caused by rising interest rates and the wider economic uncertainty”. Capital markets day, today.
Speedy Hire (SDY, 39p, £187m)
UK and Ireland tool, equipment and plant hire services provider. Directorate change and trading update. James Bunn has resigned as CFO, with effect from 1 November, to pursue an opportunity in an unrelated sector. The company has agreed that James will step down as CFO and from the Board on 1 November 2022. The Board has appointed an external head-hunter to start the process to find a permanent successor. Paul Rayner will assume the role of interim CFO with effect from 1 November 2022, for a period of up to 12 months. Guidance: “The Board confirms that trading in the first half of the financial year has been in line with its expectations”. FY results, 15 November.
Commercial real estate. The outlook for most sectors in commercial real estate weakened further in Q3 according to the latest UK Commercial Property Market Survey from the RICS (link). A net balance of 81% of survey participants now consider the commercial real estate market to be in a downturn, with headline expectations for rents and capital values falling into negative territory during the quarter. On the occupier side, the all-property average net balance for tenant demand fell to -10%, down from a reading of +17% in the previous iteration of the survey. At the sector level, occupier demand fell for both retail and office space, posting net balances of -37% and -22% respectively. Virtually all parts of the UK are seeing a downward trend coming through for tenant demand in the these two markets. For the industrial sector, although the latest national net balance of +21% remains in positive territory, this measure has eased in each of the last three reports and is now noticeably softer than the reading of +61% posted back in Q4 last year. When looking at changes in the availability of leasable space, respondents reported a further rise across both the retail and office sectors, alongside a modest decline in industrial vacancies. In keeping with this, the value of incentive packages offered by landlords in office and retail continued to pick up, with the pace of increase accelerating over the latest period. In offices, close to 90% of respondents expect businesses to scale back at least some of their footprint over the next twelve months. One-third expect this reduction will be between 5 and 10%. Office rental growth projections have been downgraded in the latest results. Prime office rents are now seen as remaining broadly flat in the year ahead, as opposed to the increase pencilled in previously. Meanwhile, the outlook is altogether more negative for secondary, with a net balance of -42% of respondents envisaging a decline in rents. Around 40% of UK respondents now feel the commercial property market is priced above fair value.
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