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Katy Warrick
Market Update
Mat Oakley
Commercial View
Lucian Cook
Residential Forecasts
Emily Donovan
London Development
What is the outlook for the prime residential
markets?
Living
in
uncertain
times
Stamp duty acts as a
drag on the market
Other taxes: IHT and
Capital Gains
Concerns around City
employment
Sales over £1m
Source: Savills using HMRC
0
1,000
2,000
3,000
4,000
5,000
6,000
20
12
Q2
20
12
Q3
2012 Q
4
20
13
Q1
20
13
Q2
20
13
Q3
20
13
Q4
20
14
Q1
20
14
Q2
20
14
Q3
20
14
Q4
20
15
Q1
20
15
Q2
20
15
Q3
20
15
Q4
20
16
Q1
20
16
Q2
20
16
Q3
20
16
Q4
20
17
Q1
20
17
Q2
Sa
les
ove
r £
1m
£1m - £2m pre Dec 2014 Over £2m pre Dec 2014 £1m - £2m post Dec 2014 Over £2m post Dec 2014
Sales over £1m
Source: Savills using HMRC
0
1,000
2,000
3,000
4,000
5,000
6,000
20
12
Q2
20
12
Q3
2012 Q
4
20
13
Q1
20
13
Q2
20
13
Q3
20
13
Q4
20
14
Q1
20
14
Q2
20
14
Q3
20
14
Q4
20
15
Q1
20
15
Q2
20
15
Q3
20
15
Q4
20
16
Q1
20
16
Q2
20
16
Q3
20
16
Q4
20
17
Q1
20
17
Q2
Sa
les
ove
r £
1m
£1m - £2m pre Dec 2014 Over £2m pre Dec 2014 £1m - £2m post Dec 2014 Over £2m post Dec 2014
£1m - £2m
Year to Dec 2014 13,600
Year to June 2016 15,300
Year to June 2017 14,100
£2m+
Year to Dec 2014 4,300
Year to June 2016 4,200
Year to June 2017 3,600
Quarterly stamp duty receipts for residential property
Source: Savills using HMRC
0
500
1,000
1,500
2,000
2,500
3,000
20
12
Q3
201
2 Q
4
201
3 Q
1
201
3 Q
2
201
3 Q
3
201
3 Q
4
201
4 Q
1
201
4 Q
2
201
4 Q
3
20
14
Q4
201
5 Q
1
201
5 Q
2
201
5 Q
3
201
5 Q
4
201
6 Q
1
201
6 Q
2
201
6 Q
3
201
6 Q
4
201
7 Q
1
201
7 Q
2
£ m
illio
n
Pre 2014 Underlying SDLT post December 2014 Additional 3%
Quarterly stamp duty receipts for residential property
Source: Savills using HMRC
0
500
1,000
1,500
2,000
2,500
3,000
20
12
Q3
201
2 Q
4
201
3 Q
1
201
3 Q
2
201
3 Q
3
201
3 Q
4
201
4 Q
1
201
4 Q
2
201
4 Q
3
20
14
Q4
201
5 Q
1
201
5 Q
2
201
5 Q
3
201
5 Q
4
201
6 Q
1
201
6 Q
2
201
6 Q
3
201
6 Q
4
201
7 Q
1
201
7 Q
2
£ m
illio
n
Pre 2014 Underlying SDLT post December 2014 Additional 3%
£7.63bn
2014
£8.99bn
Year to Q2 2017
5,585source: TwentyCI
Price cuts to £1m+ properties
H1 2016
10,604source: TwentyCI
Price cuts to £1m+ properties
H1 2017
£1m+ Market Activity Tracker1st half 2017 vs 1st half 2016
Source: Savills using TwentyCi
-20% -13%-2%
-8%+11% +2%
122For every 100 soldLondon
76For every 100 sold
Rest
of UK
Q3 2017Quarterly
growth
Annual
growth
Since Sept
2014
Prime Central London -1.0% -5.2% -15.0%
Outer Prime London -1.3% -4.3% -4.7%
Suburbs -1.0% -1.1% 0.8%
Inner commute -0.2% -0.5% 4.3%
Outer commute -0.1% 0.5% 7.2%
Remainder of South 0.7% 2.8% 7.5%
Midlands and North 0.4% 2.0% 5.0%
Scotland 0.4% 1.4% 1.6%
Outer
London
above
£2m falls
below
-12.5%
Q3 2017Quarterly
growth
Annual
growth
Since Sept
2014
Prime Central London -1.0% -5.2% -15.0%
Outer Prime London -1.3% -4.3% -4.7%
Suburbs -1.0% -1.1% -0.4%
Inner commute -0.2% -0.5% 3.1%
Outer commute -0.1% 0.5% 6.2%
Remainder of South 0.7% 2.8% 7.5%
Midlands and North 0.4% 2.0% 5.0%
Scotland 0.4% 1.4% 1.6%
Q3 2017Quarterly
growth
Annual
growth
Since Sept
2014
Prime Central London -1.0% -5.2% -15.0%
Outer Prime London -1.3% -4.3% -4.7%
Suburbs -1.0% -1.1% -0.4%
Inner commute -0.2% -0.5% 3.1%
Outer commute -0.1% 0.5% 6.2%
Remainder of South 0.7% 2.8% 8.2%
Midlands and North 0.4% 2.0% 3.8%
Scotland 0.4% 1.4% 2.0%
Sales numbers are robust, but with significant price cutting1
Leaving no evidence for reversal of stamp duty changes2
Market remains dependent on outcome of EU negotiations3
What happens next depends on a number of factors...4
Mat
London employment & employers
In the Global Financial Crisis London lost 70,000 office-based jobs
These numbers seem unlikely in a historic context, as well as in the context of the relatively low importance of financial services
0
500
1,000
1,500
2,000
2,500
3,000
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
2016
‘000 O
ffic
e-b
ased jobs
Greater LondonPublicadministration anddefence
Administrative andsupport
Professional,scientific and tech
Real estateactivities
Information andcommunication
Financial andinsurance
Early ‘90s
recession
33,700 jobs
lost
5 years to
recover
Dotcom
bust
28,200 jobs
lost
3 years to
recover
GFC
69,100 jobs
lost
3 years to
recover
0
50
100
150
200
250
300
350
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
To
tal e
mp
loym
en
t ‘0
00
City of London & Tower Hamlets
Finance & Insurance Info, comm, professional, science, tech
Furthermore, the cost implications of large moves to the continent are prohibitive
0
10
20
30
40
50
60
No
rway
De
nm
ark
Belg
ium
Sw
ede
n
Luxem
bo
urg
Fra
nce
Ne
therl
and
s
Fin
lan
d
Austr
ia
Germ
any
Ire
land
Ita
ly
United
Kin
gd
om
EU
28
Spa
in
Slo
ven
ia
Cypru
s
Port
ugal
Ma
lta
Esto
nia
Slo
vakia
Czech R
ep
ub
lic
Cro
atia
Pola
nd
Hu
ng
ary
Latv
ia
Lithuania
Rom
an
ia
Bulg
aria
Avg
hourly labour
costs
€
+25%+37%
What has changed since last summer?
• Cycle generally more significant than Brexit
• Weakened pound
• Rise in international investment into the UK
• Rising inflation leading to weaker consumer story
• Expectation of a weaker occupational outlook, with little sign that it is actually occurring
• Weakened government (which may not be a bad thing!)
“The fact is that Brexit is a lose-lose proposition, harmful both to Britain and the EU. It cannot be undone, but people can change their minds”
(George Soros, June 2017)
• Weakened Tory mandate probably means a least aggressive stance with the EU over exit (and an acceptance that the EU has the strong hand)
• Will we even manage to have a transition plan by Spring 2019?
• Possible to negotiate a delay until end 2019?
• After that a closed ended transition period with a similar situation to Turkey?
• Real exit thus delayed to 2021/22?
In the City & West End office letting has been strong (up 23% on last year and the 10 year average)
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000
2000
2002
2004
2006
2008
2010
2012
2014
2016
sq ft
Q1 Q2 Q3 Q4
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
2000
2002
2004
2006
2008
2010
2012
2014
2016
sq ft
Q1 Q2 Q3 Q4
City West End
Pre-letting activity is strong, with some businesses starting to focus on the early 2020s already
0.0
1.0
2.0
3.0
4.0
5.0
6.0
200
0200
1200
22
00
3200
4200
5200
6200
72
00
8200
9201
0201
1201
2201
3201
4201
5201
6201
7201
8201
9202
0
m s
q ft
City: 38% pre-let
Complete Pre-Let Speculative
0.0
0.5
1.0
1.5
2.0
2.5
3.0
20
00
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
20
16
201
7
201
8
201
9
202
0
m s
q ft
West End: 32% pre-let
Complete Pre-let Speculative
Who is looking for new offices at the moment?
47%
20%
9% 8% 7%4% 2% 2% 1% 1% 0%
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000B
ankin
g &
Fin
Svcs
Te
ch &
Cre
ative
Pro
fessio
nal
Re
tail
& L
eis
ure
Pu
blic
Busin
ess &
Con
sum
er
Cha
rity
/Assn
Extr
action/U
tilit
y
Manu
factu
ring
Pro
pe
rty
Serv
ice
d o
ffic
epro
vid
er
Requir
em
ents
sq ft
Tenant demand has diversified and become more footloose
Brexit occupational risks are not just about Finance
Brexit will be less of a shock and more of a wet blanket on occupier demand
The cost of housing and living in London is a bigger concern to most
employers
Summary
Lucian
Prime Central London
Domestic
London
Pre
1984
1984 to
2007
Arriving as a
World City
Developing
as a Global
Financial
Centre
2008to
2014
The age of the
financial stimulus
Prime Central London to September 2014
0
100
200
300
400
500
600
700
800
Jun
-79
Ma
r-80
De
c-8
0
Sep-8
1
Jun
-82
Ma
r-83
De
c-8
3
Sep-8
4
Jun
-85
Ma
r-86
De
c-8
6
Sep-8
7
Jun
-88
Ma
r-89
De
c-8
9
Sep-9
0
Jun
-91
Ma
r-92
De
c-9
2
Sep-9
3
Jun
-94
Ma
r-95
De
c-9
5
Sep-9
6
Jun
-97
Ma
r-98
De
c-9
8
Sep-9
9
Jun
-00
Ma
r-01
De
c-0
1
Sep-0
2
Jun
-03
Ma
r-04
De
c-0
4
Sep-0
5
Jun
-06
Ma
r-07
De
c-0
7
Sep-0
8
Jun
-09
Ma
r-10
De
c-1
0
Sep-1
1
Jun
-12
Ma
r-13
De
c-1
3
Sep-1
4
Rea
l (i
nflation
ad
juste
d)
Inde
x
Domestic Promotion GFC & QE Real House Price Trend Line = June 79 - Sept 14Source: Savills
Prices peak in Q2 1989
following house price growth of
297% in the preceding 10 years.
Prices sit 40% are above trend
line in Q1 1998.
Prices 15%
above trend line
in Q3 2002
Prices 32% above trend line in
Q3 2007, having risen by
214% in the preceding 10
years
Prices fall to 10% below their
trend line having fallen by
22% in nominal terms in just
18 months post credit crunch
Prices fall to 34% below
their trend line by end of
1992 having fallen by
26% in nominal terms
Prices 9% above
trend line in Q1
2012
5.7%per annum above the rate of inflation
Trend Line House Price Growth 1979 - 2014
Returns relative to other assets
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
PCL Gross Yields 5 year gilts
Source: Savills, Oxford Economics
2014 & beyond
Where do we go from
here?
2013
+8.3%
+6.1%
inflation
adjusted
2014
-0.4%
-1.3%
inflation
adjusted
2015
-6.8%
-8.0%
inflation
adjusted
2016
-3.3%
-3.4%
inflation
adjusted
2017
-4.0%
-6.7%
inflation
adjusted
Past 5 years
Where does that leave us?
400
450
500
550
600
650
700
750
800
Dec-07 Jun-09 Dec-10 Jun-12 Dec-13 Jun-15 Dec-16
Rea
l (in
flation
ad
juste
d)
Ind
ex
GFC & QE Post Stamp Duty Reform Real House Price Trend Line =June 79 - Sept 14
Source: Savills
Early 1990s-26% nominal
-39% real
-34% below trend line
GFC-22% nominal
-26% real
-10% below trend line
Since Sept 14-15% nominal
-18% real
-30% below trend line
In perspective
A Conservative minority government to 20221
Transition agreements are followed by a Free Trade Agreement2
No exodus of financial & insurance services from London3
No further changes to stamp duty4
Assumptions
2018
0.0%
-1.5%
inflation
adjusted
Brexit
uncertainty
2019
+2.0%
+0.2%
inflation
adjusted
Post Brexit
realisation
2020
+8.0%
+6.0%
inflation
adjusted
“Bounce” in
demand
2021
+5.5%
+3.6%
inflation
adjusted
Bounce
subsides
2022
+3.5%
+1.6%
inflation
adjusted
General
election
Next 5 years
2013 - 2017
-6.8%
-13.1%
inflation
adjusted
2018 - 2022
+20.3%
+10.2%
inflation
adjusted
2013 - 2022
+12.1%
-4.3%
inflation
adjusted
Across a decade
Other Prime Markets
How many sq ft does £1,000,000 buy you?8
06 1
,21
4
1,4
51 1,7
33
1,7
40
1,7
97
1,8
98
1,9
52
2,0
54
2,0
79
2,1
51
2,1
87
2,2
91
2,3
12
2,3
21
2,4
42
2,4
82
2,4
90
2,5
51
2,6
45
2,7
09
2,7
86
2,9
19
2,9
26
2,9
75
3,0
50
3,0
71
3,0
75
0
500
1,000
1,500
2,000
2,500
3,000
3,500
Less than 1,000 sq ft 1,000 to 1,500 sq ft 1,500 - 2,000 sq ft 2,000 - 2,500 sq ft £2,500 - 3,000 sq ft Over £3,000 sq ft
Source: Savills, On the Market
5 year forecasts
Central
London
+20%
Other
London
+10%
Suburbs
+13%
Inner
Commute
+15%
Outer
Commute
+15%
Rest of
South
+14%
Midlands &
North
+13%
Scotland
+14%
Emily
Prime London Development
Starts CompletionsDemand
8,500annual average
Prime physical completions
2017-2021
Doublethe number of
completions over the
last year
3xmore than the annual
average over the last
5 years
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Ro
llin
g a
nn
ua
l m
ark
et n
ew
ho
me
s
Prime new build sales
Yet sales hold up in an uncertain market
Source: Savills
6,200Prime new build sales
+8%Higher than the peak in 2013
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Ro
llin
g a
nn
ua
l m
ark
et n
ew
ho
me
s
Prime new build sales
Yet sales hold up in an uncertain market
Source: Savills
6,200Prime new build sales
+8%Higher than the peak in 2013
More homes available for
sale at completion
2017 – 2021
c.1.3 homes will be completed for every 1 sold
8,00011,000 in 2016
12 months to Q2 2017
Falling starts will ease pressure on the pipeline
-27%
Alternatives to mitigate oversupply?
54% over 65’s are
under-
occupying their
London homes
by 2+ bedrooms
65% Growth of over
65’s in London
over next 20 yrs
313
£253bn
2,620Office
Serviced
apartments
Retirement
Serviced
apartments
Office
2.9in 2014
1.9in 2016
1.1in H1 2017
69%£5m+ sales
this year were completed
units
The changing nature of prime demand
Owner occupiers feature closer to completion
75%
48% 44%
29%
25%
52% 56%
71%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
More than 2 years 1-2 years 3 months to 1 year Up to 3 months
Pro
po
rtio
n o
f p
rim
e p
urc
ha
se
rs
Length of time purchased off plan
Investor Owner Occupier
London’s prime supply pipeline of new homes is unprecedented1
But prime new build sales have been encouraging2
Some developers will diversify & deliver different uses3
Owner occupiers prefer tangible, completed homes4
Thank you
© Savills 2017
This presentation is for general informative purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus,
agreement or other document without prior consent. While all effort has been made to ensure its accuracy, Savills accepts no liability whatsoever for any direct or consequential loss arising
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