Newsletter July 2007

Survey of ARLA members letting agents

Demand for rented properties seriously outstripped supply and rent levels rose during the three months to the end of May

according to the latest quarterly survey of ARLA Member Letting Agents. These results show the

shortage of properties and the continuing need for investment in the private rented sector at all levels.

Rents rose for the fourth quarter running for each type of property, including detached, semi-detached and terraced houses

and flats. As a result of increased demand, void periods have fallen to an average of 24 days.

Over two thirds of all agents in Prime Central London report rising rent levels. Half of the agents in the rest of the South

East say the same and in the rest of the country the proportion of agents reporting rises rose from 33% to 35%.

Seven out of ten Prime Central London agents say there are more tenants than properties. This is the highest figure seen

since the ARLA surveys started six years ago. In the South East, ten percent more agents report demand is outstripping

supply and the proportion in the rest of the country with a lack of supply has also risen.

Commented Adrian Turner, Chief Executive of ARLA, "There is a shortage of all forms of housing in this country and these

results show that the shortage of good quality property is also apparent in the rented sector."

The average capital asset values of rented houses rose during the past three months by 2.2% in Prime Central London, 0.3% in

the Southeast and, by contrast, fell by 3.9% in the rest of the UK."

Average rented house values ranged from £885,000 in Prime Central London to £229,900 away from London and the South East.

Rented flats did less well, with the average asset value across the country down by 1.3% for the three month period. Asset

values for flats ranged from £501,000 in Prime Central London to £210,000 in the South East and just £153,000 in the rest of

the country. However, flats showed a slightly higher gross return.

Despite the rising rent levels, the average weighted returns are down marginally from 5% to 4.8% for houses and from 5.1% to

5% for flats. .ARLA believes this to be a reflection of continually rising house prices during the quarter.

Tenants continue to stay in rental properties for an average of well over a year. They remain in the same property for the

longest in Prime Central London at an average of 17.7 months. This compares to an average of 15.2 months for the South East

and 14.2 months elsewhere. These figures have shown little change for the past two years.

Said Adrian Turner, " Even though it still needs more investment, the Private Rented Sector is continuing to provide choice

in housing and a safety valve for the housing market, particularly now, at a time of mixed expectations for future strong

rises in house prices."

The ARLA survey of member letting agents is the largest survey of its kind in the Private Rented Sector, with 463 letting

agents responding to this quarter's survey.

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UK student accommodation market is now worth over £17 billion.

Student Accommodation sales top £500 million, says Annual Report from King Sturge. A “revolution” in student accommodation

provision has created a multi-million pound investment sector with total sales of more than £500 million last year.

“Five years ago, the sector was dominated by universities offering traditional halls of residence and ‘amateur’ landlords

offering multi-let houses,” says Philip Hillman, the national head of King Sturge’s student accommodation group.

Today, it is a much more competitive environment with specialised corporate developers and operators expanding their portfolios through

acquisition of existing stock and by the development of further sites.”

Mr Hillman says the standard of student accommodation is also continuing to rise.

“This is a far cry from the shared bed-sits of yesteryear,” he comments. “Now, en suite facilities are considered standard

in most bedrooms, as are high-speed data networks. Indeed, in King’s Cross, London, one private equity developer is

currently constructing 800 studios for the top end of the student market – complete with free wireless internet connection

throughout the building, 24-hour security guards, coffee shops, a cinema and a gymnasium.”

According to the latest survey on UK student accommodation, the total value of the market, at the end of 2006, was in excess

of £17 billion. This figure does not include accommodation where students live in shared houses.

Mr Hillman added: “Without a doubt, student accommodation is now widely recognised as an asset class in its own right.But

while 100,000 or so beds have been purpose-built by private sector developer/operators in recent years, some 300,000 beds

are still owned and operated by the Higher Education sector. However, a proportion of these are now outdated and fail to

meet both the needs and expectations of today’s students.”

Universities have a wide range of options to meet their requirements for the future supply of student accommodation,

including the refurbishment of existing accommodation, self-funding new accommodation, or entering into partnerships with

third parties, such as housing associations or private sector operators.

“The partnership approach certainly offers the opportunity for universities to develop new facilities without selling the

family silver,” comments Philip Hillman.

Overall, says the King Sturge research, the proportion of students now living in commercially-operated halls is growing – as

the quality of new purpose-built accommodation improves compared to a perceived ageing stock of university-maintained

property.

“Whatever the way forward, there appears to be a wide disparity of opinion in the university sector as to how each

institution should best hold its residences,” says Mr Hillman.

“Many universities believe that ownership is essential for control of assets – others are more relaxed and are more focused

on quality of accommodation and the student experience. However, there does seem to be a lesser emotional attachment to

off-campus halls than for those situated at the heart of the university estate.”

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RICS UK Housing Market Survey May 2007

Housing market slows but buyer enquiries hold up

House price inflation slowed in May, but buyer enquires stabilised in spite of the May interest rate rise, says RICS’ UK

Housing Market Survey. House prices rose for the nineteenth consecutive month in May but the rate of growth reverted back to the slowing trend

which began at the end of last year. 23.9% more Chartered Surveyors reported a rise than a fall in house prices, down from 28.5% in April.

New buyer enquires stabilised in spite of the May interest rate hike, indicating that underlying demand conditions are still

good.

The effect that the current rate tightening cycle has had on new buyer enquiries has so far been quite limited with the

absolute level of demand still high in light of buoyant economic conditions. New instructions to sell property increased at the fastest pace in the survey’s history.

Surveyors report that sellers listed their properties early in order to avoid the upfront cost of assembling the now delayed

Home Information Pack. 39% more Chartered Surveyors reported a rise in new instructions up from 12% in April.

The ratio of completed sales to the stock of available property on the market fell for the second consecutive month

indicating that market conditions have started to loosen.

RICS spokesperson Jeremy Leaf said: “The stabilisation in buyer enquiries sends a clear signal that home buyers are

undeterred by recent interest rate rises. "However, the full impact of rising rates is yet to be felt and buyers tempted by the recent strength of house price rises

may need to exercise caution.

"With interest rates expected to rise even higher and some home owners fearing the end of fixed-rate deals, affordability

conditions are set to worsen across the board and will herald a cooling market.

"Conditions in the market have loosened as sellers sought to avoid the upfront costs of the recently delayed HIP.

"However, the surge in supply will be short lived, although owners of four bedroom properties may decide to enter the market

before the next deadline on 1 August."

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NATIONWIDE DEMAND FOR COMMERCIAL PROPERTY WILL PICK UP AFTER SIX SUBDUED MONTHS – LATEST CBI / GVA GRIMLEY SURVEY

Despite the booming London market, nationwide demand for commercial property has been steady over the last six months,

according to the latest survey of UK property trends.

Over the next six months, however, growth in demand for commercial property is expected to pick up, returning to near the

long-term average.

The twice-yearly survey of property trends - which takes in offices, shops, factories and warehouses - reveals that over the

last six months 22 per cent of occupiers increased their property holdings while 20 per cent reduced them - this is a

rounded balance of +1 per cent. Firms are more optimistic over the next six months, however, with the balance expecting to

increase the amount of space they occupy (+8%) close to the long term average (+11%).

The key drivers of firms in changing property portfolios are improving the quality of their accommodation and expanding

their business, the survey shows. Stuart Morley, National Head of Research at GVA Grimley, said: “With the London office market booming, a common but

misplaced assumption is that the entire UK office market is enjoying similar growth. This nationwide survey illustrates that

this isn’t the case, and that across the country as a whole demand is more moderate, but improving.”

Lai Wah Co, the CBI's Principal Economist said: "The outlook for the next six months is encouraging, with demand for

commercial property set to pick up.

"While demand for office space is expected to improve, retail property occupiers expect their expansion to slow however,

reflecting expectations that four recent interest rises will now start to restrain growth in consumer spending."

Broken down into property sectors, the survey shows that firms reduced their office space over the last six months (a

balance of -8%) but they now expect demand to improve, with a balance of zero per cent closer to the trend rate.

Demand for retail property grew healthily over the last six months (by a balance of +19%), in line with the last two

surveys. This is expected to slow to +10 per cent over the next six months, considerably below the long term average of +17

per cent.

Over the last six months demand for industrial property reduced by a balance of 3 per cent and for warehousing it fell by a

balance of 2 per cent. Firms remain pessimistic about occupier demand over the next six months, with balances of -13 per

cent expected for industrial property and -15 per cent for warehousing.

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