London England Real Estate
The London office market is one of the largest and most dynamic in Europe, but with it comes stress, as work and travel restrictions in the distance now force a change in social behaviour.
Moreover, given the uncertainty surrounding Brexit, international retailers are expected to delay plans to enter the UK. This ignores the fact that some (especially international) retailers have become more reluctant to go to the UK while uncertainty remains. For landlords, this could have long-term effects on the stability and attractiveness of the shopping centre (see Chart 10). Even if rents stabilise or even fall slightly in London, affordability will remain a key factor.
How well property companies adapt to these challenges will be crucial to the long-term viability of London's shopping centres and the future of the city as a whole, as well as its economic viability.
TfL has recently done some very interesting work looking at how taxpayers can recoup the rising property prices that arise, for example, when new pipes are not opened. It was noted that the physical quality of the housing has improved, but the social quality has deteriorated. The idea behind EPC is that energy efficiency and market forces will lead to better insulated homes if those who buy and rent properties are informed.
While the UK-based residential landlords continued to perform well compared to other property segments, operating ratios were less stable. While rental income was 95% in August, occupancy fell to 91% in September, compared with 94% the previous month.
Hammerson, which has lower sales productivity in the UK than France, is in line with the rest of Europe, where sales productivity (turnover per square metre) is higher on average. So we think that figure could be higher in London, but not as high as in France or Germany.
London's longer commute compared to many other cities might explain why, and we believe that leases, which typically last more than nine years, with exit options, could be a good indicator of the long-term viability of office space in London. Office space will have to cope with the impact of Brexit and more work from home, e-commerce will have to cope with retail, and rental housing will have to cope with tenants leaving the city to make more space, either in suburbs or rural areas. This could have a negative impact on the value of a rental unit in a city like London, but also on its value.
In regulated rental markets, where rents tend to be more affordable, the average stay of tenants is much longer, which supports occupancy and rental stability of landlords (see chart 11). The supply of rental properties has fallen since 2016, when landlords were targeted by the taxation and treatment of rental properties and properties.
We believe this trend will further affect landlords' ability to influence the long-term viability of their properties. British retail landlords have recently shown a willingness to increase variable sales - rent-based rents that could fundamentally increase the risk their tenants are taking - and, given the more difficult situation they face, they seem more open to discussing it. It is time to seriously explore some form of land - a VAT to make things a little better. For more information, see our article "How Lockdown Measures and Remote Working Affect European Office Landlords," published on RatingsDirect on 27 May 2020.
An alternative explanation is that since April 2013, the number of homeowners reporting properties as empty has increased due to property tax rebates on vacant properties, owing to the introduction of a new property tax rebate system in 2013.
The Marquess of Salisbury owns a large amount of property in Charing Cross, including a pub called Salisbury, although he owns an almost - if not entirely - offshore company. Renting student flats until 2019 is one of the most expensive options available to students in London, and there is no way to offset these huge costs - high rents and rents. Money that could have been saved for a deposit is now being spent on rent, so it is no longer possible.
The City of London Corporation owns a property in Mayfair nestled between Grosvenor Crown Estates and Regent's Park is surrounded by large columned houses. It is not the most expensive site on the Monopoly board for nothing, but it is also home to one of London's richest people, the Prince of Wales.
According to official statistics from October 2015, there were 1.5 million square metres of office space available in London. By 2019, London will have three times more office space than any other European city, compared with cities such as Berlin. According to the Office for National Statistics, the available office space is 1.8 million square metres, with an average of 2.6 million square metres a year. Empty Homes, a charity, argues that empty homes are contributing to a housing crisis and writes in a report that the longer a property sits empty, the more home ownership is wasted.