Big tests lie ahead if the Labour Government is to drive growth by bulldozing planning restrictions and setting housing targets. Fortune is on its side. The fall and long pause in property values and rent yields, caused by the pandemic and working from home, is unwinding.
Interest rates are heading down, making borrowing more affordable. Risk averse quoted real estate companies are being more adventurous particularly in the ‘golden triangle’ of London, Oxford and Cambridge.
Whether big developers can be persuaded the time is right to start building in regional cities is less clear. Rental yields outside the recovering City and West End are much lower. Demand for big campuses, of the kind seen at Paddington and King’s Cross, is not so quantifiable.
At the micro level the difficulties can be horrendous. When I was holidaying on the Tamar estuary in Cornwall this summer the parish notes were not encouraging.
A request for planning permission for a couple of dozen houses had been rejected.
Building back: Big tests lie ahead if the Labour Government is to drive growth by bulldozing planning restrictions and setting housing targets
Reasons given were the weaknesses in the cliff road which would provide access and a shortage of GP and water services.
Setting targets is easy enough but unless developers can be persuaded to build infrastructure into their costings, wiping out planning rules is not going to deliver.
That doesn’t mean that the commercial developers are without ambition. In central London the grand dame of British listed property companies, Land Securities, is getting close to completing its compelling redevelopment of Victoria.
West End office rental yields are up by 11 per cent since the Covid-19 trough of 2021 and prospects are looking good.
Rival British Land (BL), heavily committed to the City through its Broadgate development and the project for hedge fund Citadel nearby, is upbeat. Broadgate is being reshaped and modernised and is as much leisure centre as offices. Rents are up 5 per cent and the sharp drop in values – some 31 per cent from trough to peak – is correcting.
There is optimism about retail parks and not just those in London. City centres may be struggling and that will be a problem for the housing tsar Angela Rayner.
However, as the economy recovered in the first half of this year, traffic and footfall in retail parks boomed. High Street favourites, notably Marks & Spencer, have seen turnover go up many times. Next is doing well and newer players such as B&M and Aldi continue to make a mark. Now that the pandemic and cost of living shocks are dissipating, big real estate firms are becoming less risk averse.
BL has brought a former airport site near Cambridge where it aims to build a mixed used science and innovation centre. The difficulty for the Government is that doubling down on the Golden Triangle will only strengthen productivity in an area which is among the fastest growing in Europe. Replicating that success is hard. The Elizabeth Line demonstrated how infrastructure drives development.
HS2 is bringing investment to Birmingham. But efforts to galvanise private developers to invest in and around Euston, in preparation for the London end of HS2, is proving tricky. One developer described it as a big hole in the ground going nowhere.
Since the Second World War, few investments have performed as well as commercial property. The pandemic snapped a long run of rising values and led to retrenchment. Property funds were gated by managers. The latest survey from S&P purchasing shows construction rebounding as demand and rentals revive.
DIY INVESTING PLATFORMS
AJ Bell
AJ Bell
Easy investing and ready-made portfolios
Hargreaves Lansdown
Hargreaves Lansdown
Free fund dealing and investment ideas
interactive investor
interactive investor
Flat-fee investing from £4.99 per month
Saxo
Saxo
Get £200 back in trading fees
Trading 212
Trading 212
Free dealing and no account fee
Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.