Figures from London Central Portfolio Limited (LCP) and the British Retail Consortium point to a decline in both London focused new home starts, along with broader malaise hitting high street retailing properties as online shopping continues to take market share.
LCP’s latest LCPAca Residential Index points to a 13.8% drop in so called Prime Central London new build sales compared to the same time last year. The number of transactions in the area defined by the index fell to just 88 in the last quarter.
Across the so called Greater London area, the growth in new build sales has fallen to 5.2% from a previous rate of 25%. This means that Greater London’s share of the new build property market has dropped to 15.6% from 20% a year ago.
Looking across the last full calendar year, 2017, LCP suggests that new builds fell by 25.4% compared to 2016 – but this is an average that masks some truly significant shifts, as the London borough of Southwark saw a 61.8% fall, and Tower Hamlets a 43.3% fall, by way of example.
And measured by the number of new build applications lodged with the relevant municipal authorities, LCP points to figures suggesting a 42% fall in Westminster and Wandsworth. Planning permissions and completions across inner London fell by 7.4% and 6.1% respectively through the year compared with the year before.
The outer parts of London by contrast experienced a 25.8% increase in new build starts (as distinct from new build sales) through 2017. Price stability has also been better maintained in the outer parts of the city, the data suggests, with LCP reporting while average prices in prime London were down 12.7%, they were up 8.5% elsewhere.
A key trend has also been seen affecting residential buildings of more than 20 storeys. The number of tower block starts fell from 46 in 2016 to 32 in 2017. This means that the number of residential unit build starts fell to 5,500 from 8,200 the previous year. Applications for such properties across London fell to 67 from 74 the previous year, a 10% decline.
Naomi Heaton, CEO of LCP, noted that there is a plethora of data pointing to troubling times for the London property market.
“ONS (UK Office for National Statistics) data just released for the first quarter shows the construction sector suffering its worst performance since 2012, with private housebuilding shrinking for the first time since June last year,” she said.
“The sector contracted at its sharpest rate in just over five years, with output falling by 2.3% compared with the previous three months. Whilst the ‘Beast from the East’ has shouldered much of the blame, in truth it was already suffering. According to the ONS, a large portion of the fall was due to a sharp 2.6% decline in January. This is a significant barometer of whether developers think there is strong enough demand for long-term projects.”
“A downturn in international buyer sentiment has impacted the new build sector which remains the most volatile. According to the LCPAca Residential Index, there have been both quarterly and annual price falls in Prime Central London and a lacklustre performance in Greater London. It is quite possible new build transactions will continue to decline, particularly in Inner London, given the 25.4% fall in new build starts reported by LOREMA. This situation could well worsen over the next two to three years, as schemes under construction which fail to sell off-plan come to completion.”
The importance of the London market is illustrated by data from FE, where the correlation between the Investment Association property sector and London performance is noted, but also the performance of a number of property funds invested in assets such as shopping centres.
Apart from the challenges to property investors from trends affecting the capital city, there are other broader trends affecting the retail property market across the UK.
According to the latest monthly report by the British Retail Consortium, which measures indictors such as footfall into physical stores as well as online trading, the first quarter of this year has been difficult.
By April this year, about 10% of all shops in all town centres across the UK were vacant, it said.
In what it has described as “an unprecedented trend”, the BRC measured a 3.3% decline in footfall across the UK in April, which followed on from a 6% fall in March, taking the two-month decline to 4.8%.
“Not since the depths of recession in 2009 has footfall over March and April declined to such a degree, and even then the drop was less severe at 3.8%,” the BRC stated.
Certain factors, such as the dates of Easter this year, coupled with ongoing poor weather are cited as immediate near term causes of the decline in visits to physical shops, but the longer term trend towards online shopping remains strong, even as shoppers are looking for something new and different from the physical shopping experience, the BRC further suggests.
“Our in-store footfall trackers demonstrate that hospitality outlets lost proportionately less footfall than bricks and mortar destinations generally. So it is clear that retail trading is doubly challenged by a thrifty consumer in concert with a continuing predisposition towards leisure rather than retail spend; reflected by a rise in the vacancy rate to 9.2%.”
Other BRC reports cite scores from Hitwise, which measures website traffic. It suggested that online retail visits were up 6.7% in April compared to the same month a year ago, with the type of searches influenced by the poor weather early in the month – searches for “mould paint” and “indoor plants” were up 30% on the same days a year ago, Hitwise said.
Turn on TV news market reports, flick to the financial commentary in the business pages, and more often than not those holding forth their views of the sector will be male.
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