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.

January 27, 2023

Residential rents up, commercial down | HS2, where will it end? | Fortnight ahead

Company research

Watkin Jones (WJG, 110p, £281m) – WJG is a client of PERL

Residential for rent developer and manager in the build-to-rent (BTR) and student accommodation sectors. Research note published following the company’s 25 January FY results, Rising rents attract investors back to market:

“Residential-for-rent developer and manager Watkin Jones on 24 January delivered FY22 results which were broadly in line with our expectations. Continuing strong demand for its core rental developments, as highlighted in October, was hampered by delays in investment decisions following the mini-budget. We believe recovery has begun, albeit on a slightly shallower trajectory – but current market conditions may offer the group opportunities. Surveys show continuing rental growth, attracting back investors, but stretching affordability – we see WJG as ‘part of the solution’.”

Economic data

Residential rents. The rents sought by landlords nationally continued to rise at the end of 2022, but at a slower rate, according to the latest Rightmove Rental Tracker. The pace of growth slowed from +3.2% Q/Q (Y/Y, +11.0%) in Q3 to +0.9% in the three months to December (Y/Y, +9.7%), taking the average monthly rent to £1,172). However, in London the trend accelerated: +5.8% to £2,480, from +3.8% in the previous quarter, pulling the annualised rate to +15.7%.

national quarterly change in average asking rents

Commercial property. RICS Commercial real estate agents became increasingly convinced that the market is heading into a downturn, with demand hit worst in retail and only industrial showing any continuing growth.  The Q4 2022 RICS UK Commercial Property Survey. 83% of respondents believe the market is in the downturn phase of the cycle, up slightly from 81% in Q3. The largest share, 49%, still consider this downturn to be in the early stages, although there was an increase from 20% to 34% in the share of survey participants believing the midpoint in the decline phase has been reached and only 9% that it has bottomed. The balance (% of respondents reporting a rise minus % registering a decline) for occupier demand slid to -20% from -10% previously. Offices registered -29% and retail, -45%, with both readings falling deeper into negative territory over the quarter, indicating an accelerating decline; industrial remained positive, +6%, albeit this represents a significant softening compared to the strong growth being report during H1 (below, left). Availability of space for all three sectors followed the opposite path (below, centre), pushing rental expectations, except industrial, where rents grew, but more slowly (below, centre).

Occupier demand availability rent expectations

In other news …

Infrastructure. The HS2 rail line is a “specific priority”, Chancellor Jeremy Hunt has insisted, following a report the scheme may no longer reach central London, BBC. The Sun reported that rising inflation and construction costs mean HS2 trains may terminate in the suburbs of west London instead. The paper said directors were considering pushing back its Euston terminus to 2038, or scrapping it completely. The Government has not denied the report. The move would mean trains would run from a new hub at Old Oak Common, five miles away, and commuters would have to use the Elizabeth Line or undergrowth to travel to central London. In a speech setting out his long-term vision for economic growth, Jeremy Hunt said the Government was “absolutely committed to showing that we can deliver big important infrastructure projects. That is why in the Autumn Statement we protected key projects like HS2, East West Rail and core Northern Powerhouse Rail”. The Sun also reported that a two to five-year delay to the entire project is also being considered.

Viewpoint: I suspect this is one of a range of ‘value-engineering’ options being explored; just because it’s one of them, it doesn’t it’s going to happen.

Comment. Funny old place, the stock market. My latest column for Property Week looks into why housebuilders shares went up just as many were wheeling out gloomy trading statements:

“There’s an old stock market adage, dating to less assiduously policed times: buy on the rumour, sell on the news. At least when it comes to good rumours. However, the opposite played out after housebuilders wheeled out a litany of sobering updates this month: their shares went up.”

Fortnight ahead

Construction property company and economic news
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