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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June 28, 2023

Prices edge up but still on track for 5% fall, Zoopla; Fixed-rate loans continue to track upwards after inflation shocks | News – school buildings at risk following years of under-investment | LOK |

Company news

Lok’n’Store Group (LOK, 806p, £242m mkt)

UK self-storage group. Trading update.

Guidance: “Trading continues to be excellent with store revenue expected to be up c. 10.5% in the 2nd half of our financial year ending 31st July. We continue to deliver on our objective of opening more Landmark stores whilst maintaining the strength of our balance sheet and remaining conservatively geared”.

Trading:  A new 46,000 sq ft Landmark freehold store in Peterborough opened on 27 June, with a total project cost of £7.5m.  With both Peterborough and the Bedford store (opened February) now open and trading they will be independently valued by JLL as a trading asset for the first time at the July 2023 year-end. “The Board anticipates each to be NAV accretive at first-time valuation.  Early trading at Bedford continues to be excellent”. Building work continues at new store developments in Staines and Kettering while Basildon is now being fitted out and all will be open in the next 12 months, adding a further 162,100 sq. ft. of trading space. Indicative intention granted to formally grant planning permission in Barking, London; at c.84,000 sq. ft, this freehold Landmark store will be the group’s biggest store to date when it opens. The total secured pipeline of 10 new stores will result in the Group operating 52 stores when fully developed, increasing the owned store trading space by 38%.

Outlook: “Our secured pipeline of 10 stores will add considerable momentum to earnings growth in the coming years.  Lok’n’Store is well positioned to build and open more new stores in the under-supplied UK self-storage market”.

Economic data

House prices rebounded on a M/M and Q/Q basis during June, but could reverse in the second half of 2023 as higher mortgage rates bite, according to the latest Zoopla House Price Index.. UK prices rose by 0.2% M/M and by 0.5% Q/Q to £261.1k in June, following two quarterly declines; the annualised rate has slipped from +1.9% to +1.2% during June. Two regions saw Y/Y falls: London (-0.2%) and Northern Ireland (-0.8%), according to the property portal; while Wales rose 2.5% and Scotland 2.1%; the West Midlands was the best performing of the English regions (+2.4%). Zoopla maintained its view that house prices will fall by up to 5% during 2023 and highlighted a growing number of sellers that have trimmed their own initial pricing demands: 42% now will accept a discount of over 5%, while 15% will take off more than 10% off their original figure (see below).

Mortgage lending. Popular fixed-rate home loan rates continue to trend upwards following the second month of disappointing inflation data, according to Rightmove’s weekly mortgage tracker. The average for all three five-year fixed rate products we track increased, but less so for 95% LTV loans. There larger rises, however, in two-year fixed rates, suggesting markets anticipate most upwards pressure in the shorter- rather than longer-term. For instance, two-year rates on 95% LTVs rose in the last week by 26 bps to 6.62%, while on five-year products it was only 6 bps to 5.87%.

Average mortgage rates, 5 year fixed

In other news …

Education construction. More than a third of all English school buildings have passed their estimated initial design life and almost 600 use concrete frames that are prone to collapse, according to a government survey which identifies chronic under-funding across the sector, BBC. The National Audit Office report said the Department for Education had recommended minimum funding of £5.3bn per year to mitigate the most serious risks of building failure in its 2020 spending review with £7bn per year being the ‘best-practice’ level. But the department was subsequently given an average of £3.1bn per year from the Treasury. The NAO’s report found more than 24,000 of all school buildings had passed their estimated initial design life. It also highlighted continuing concerns for school buildings that still contain reinforced autoclaved aerated concrete (RAAC) – a lightweight form of concrete prone to collapse, used widely between the 1950s and mid-1990s. The DfE has identified 572 schools where RAAC might be present, so far confirming it in 65, of which 24 required immediate action.

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