RESIDENTIAL MARKET
COMMENTARYDecember 2017
A Cushman & Wakefield Insight Publication
1Cushman & Wakefield | Residential
ECONOMIC OVERVIEW
Economic Overview
ECONOMIC INDICATORS 2018 2019 2020 2021 2022
GDP growth (%) 1.5 1.6 1.9 1.9 1.9
Household Disposable Income (%) 1.7 2.0 2.9 3.4 3.5
CPI Inflation (%) 2.3 1.6 1.7 1.8 1.9
Exchange Rate (US$ per £) 1.38 1.43 1.44 1.45 1.47
Exchange Rate (Euro per £) 1.13 1.14 1.15 1.16 1.17
BoE Interest rate (%) 0.50 0.50 1.00 1.50 2.00
Source: ONS / Oxford Economics / OBR
Underpinned by ongoing growth in
the manufacturing sector in Q4 2017,
Final quarter GDP growth looks set
to come in at 0.4% when official
figures are released. More positive
than expected end of year data
releases have led some forecasters
to revise-up their GDP forecasts for
the coming 3-5 years.
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
Jun 16 Jul 16 Aug 16 Sep 16 Oct 16 Nov 16 Dec 16 Jan 17 Feb 17 Mar 17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17
Figure 2 - CPI Inflation & Average Earnings (y-on-y change)
Average Earnings (exc bonuses) CPI Inflation
Latest data releases show CPI inflation decreasing by 10 basis point in what is widely perceived to be the start
of a period of falling inflation throughout 2018. Despite this fall, the spread between inflation and wage growth
remains stubbornly wide, with the former exceeding the later for nearly a year now. These conditions have
started to notably feed through into consumer confidence as households start to adjust their spending
behaviour accordingly. However with CPI expected to fall below 2% by Q4 2018, and wage growth showing
some signs of a slight gathering of pace, a convergence of the two could be likely somewhere in Q2 2018.
1
1.1
1.2
1.3
1.4
1.5
1.6
1.7
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Foreign Exchange Rates
Euro per Pound Euro per Pound (f) US$ per Pound US$ per Pound (f)
On-going uncertainty surrounding the UK’s exit from the EU has contributed to record low GBP–USD/EUR
exchange rates. However, latest forecasts predict a Sterling strengthening in the coming five years with
exchange rates predicted to finish 2022 at $1.47 and €1.17.
2Cushman & Wakefield | Residential
National Market
OVERVIEW
Sources: UK HPI / Nationwide / Halifax
November’s UK HPI data release recorded the national annual rate of house price inflation to be currently
running at 5.1% (Nov 17), with our projections showing a probable year-end figure of c.4.5% for 2017. Despite
this cooling rate, the UK HPI rate is some way above the already released other year-end figures of, 2.7%
(Halifax) and 2.6% (Nationwide). When the UK HPI data is broken down regionally, 2017 demand appears to
have been greatest in the Midlands where the annual rate of growth lies between 6.4%-7.2%. Once again the
slowest rate of growth is in the North East, where prices rose just 2.3% during the year.
TRANSACTIONS
After three years of relatively steady transactional activity, the volume of 2017 sales looks set to finish the year
6-7% down from 2016. When viewed over the longer-term, the reduction in sales activity is even greater with
2017 levels c.30% below the pre-2007/2008 market downturn levels. This reduction in activity is most acute in
South and Eastern areas of the country where total 2017 transactions look set to finish the year 10-15% down
of 2016 levels. The lowest falls in activity were recorded in the North, where on average transactions fell less
than 5% from the previous year.
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
UK Sales Transactions
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
West MidlandsRegion
East Midlands North West South West East of England South East Yorkshire and TheHumber
London North East
House Price Inflation(12 months to Nov 2017)
The latest RICS Residential Marker Survey shows falling levels of new buyer enquiries in December, which to
a certain extent is expected for the time of the year, but is also exaggerated somewhat at present by the slower
pace at which the market is currently operating and the lack of urgency amongst buyers. Corresponding falls in
the number of properties being marketed for sale should ensure a stabilising of prices as supply/demand levels
remain balanced.
-16.0%
-14.0%
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
London East ofEngland
SouthEast
SouthWest
EastMidlands
WestMidlandsRegion
NorthWest
Yorkshireand TheHumber
NorthEast
2016-2017 Change in Transactional Activity
3Cushman & Wakefield | Residential
National Market (cont)
NEW HOMES
Despite a considerable time lag in data releases for new home construction, MHCLG data for England
showed that during the first 9 months of the year, building commenced on 130,560 new homes, making it
the most productive period since 2007.
This rapid growth in new home construction has been led by somewhat of a construction boom in London
where nearly 1-in-6 of all property sales in the capital during 2017 was a new home. This is considerably
higher than the 20 year average figure of 8.2% of all sales and highlights the growing importance of
London’s new home market in supplying the market with available stock.
Sources: UK HPI / Department for Communities and Local Government
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
London North East East Midlands South East East of England West MidlandsRegion
South West Yorkshire andThe Humber
North West
Percentage of Property Sales Which are New Homes
2017 (projected) 2016
RENTAL MARKETS
The East Midlands is currently experiencing its highest rate of rental growth since 2006, with rents rising
2.6% in 2017. At the other end of the scale is the North East, where rents remained flat in 2017 (+0.1%),
and have experienced growth of just 2.6% in the last five years. The most rapid cooling of rental price
inflation can be witnessed in London, where rates of growth have cooled from 5.3% in 2012, to a current
rate of less than half of one percent (0.4%).
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
East Midlands East South West South East West Midlands Yorkshire and TheHumber
North West London North East
Private Rental Growth
1 year 3 year 5 year
4Cushman & Wakefield | Residential
PRIME CENTRAL LONDON (PCL)
The final month of 2017 provided a surprising upturn in
the Prime Central London Market with prices increasing
0.6% in December. However, with the average discount-
to-asking spread widening further (to 6.2%), it remains to
be seen if this uptick is nothing more than a blip in the
long-term trend. Transaction volumes also showed
improvement in December, rising 11% on the preceding
months total. Rental prices followed capital values, with
significant rises of 1.2% for the month, resulting in overall
prices finishing the year just 1% down overall.
Considering the uncertainty surrounding the UK’s exit
from the EU, this stability in pricing highlights the strength
of the capital’s private rental markets.
Prime London Markets
Source: Cushman & Wakefield Research / LonRes
Area definitions for report: PCL = W1H, W1U, W1G, W1B, W1S, W1C, W1K, W1J, SW1A, SW1Y, SW1P, SW1H, SW1E, SW1W, SW1X, SW7, SW3, W8. OPL = NW3, NW8, W2, W9, W11, W14, SW6, SW10.
OUTER PRIME LONDON (OPL)
Mirroring Prime Central London, transaction volumes in
Outer Prime London markets showed a healthy month-
on-month uptick in December, rising 17% on November’s
figure, whilst also showing an increase of 13% on sales
activity in December 2016. However, unlike PCL, capital
values fell 0.5% and finish the year 1.9% down on
December 2016. Despite finishing the year 2.1% down,
there were positive signs coming from the rental data in
December. Prices held firm (increasing 0.1%) and the
average discount-to-asking price contracted 10 basis
points to finish the year at 3.3%, suggesting a possible
return to positive growth during 2018.
IndicatorM-on-M
(Nov-Dec)
Y-on-Y
(Dec-Dec)
Sales
Transactions+11% -9%
Capital Values +0.59% -1.94%
Average sale
discount %+18bps (6.20%) +91bps
Rental Prices +1.15% -0.98%
Average rent
discount %+38bps (3.99%) -111bps
IndicatorM-on-M
(Nov-Dec)
Y-on-Y
(Dec-Dec)
Sales
Transactions+17% +13%
Capital Values -0.52% -1.89%
Average sale
discount %+3bps (4.81%) +22bps
Rental Prices +0.06% -2.13%
Average rent
discount %-10bps (3.27%) -102bps
95.50
96.00
96.50
97.00
97.50
98.00
98.50
99.00
99.50
100.00
100.50
Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17
Cushman & Wakefield Prime London Markets Index(Dec 2016 = 100.00)
PCL Cap Values PCL Rents OPL Cap Values OPL Rents
5Cushman & Wakefield | Residential
Mortgage Market
Sources: UK HPI / UK Finance / CML / ONS
OVERVIEW
As shown in 1st time buyer affordability data, record low interest rates have ensured that mortgage payments
have remained relatively affordable since the 2007/2008 market downturn. While house price-to-earnings
ratios have gradually risen to near 2007 levels, the percentage of take-home pay required to service a
mortgage has remained stable at between 33-35% for the past nine years. With wage growth and house price
inflation largely forecast to run in tandem in the coming 24 months, further (albeit probably small) interest rate
rises during this period would place upward pressure actual affordability.
Investor activity levels have failed to significantly recover since the introduction of the 3% stamp-duty
surcharge for additional property purchase in April 2016. In the year to October 2017, mortgages issued to
Buy-To-Let landlords for house purchase fell 30% from the corresponding period a year earlier. This led to
this type of lending account for just 9.4% of all property purchase loans (year to Oct).
44.9%
41.7%
13.4%
Year to October 2016
46.1%
44.6%
9.4%
Year to October 2017
Home movers 1st time buyers Buy-To-Let investors-35.0%
-30.0%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
1st time buyers Home movers Buy-To-Let investors
Number of borrowers for property purchase(year to Oct 2017 against year to Oct 2016)
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
0.0
1.0
2.0
3.0
4.0
5.0
6.0
First Time Buyer Affordability
Mortgage payments as % of mean take home pay (LHS) House price to earnings ratio (RHS)
6Cushman & Wakefield | Residential
Author
Lee Layton
Associate Director
Residential - Research
020 3296 4574
Contacts
Candice Matthews
International Partner
Head of Residential
020 3296 3988
Mike Bickerton
Partner
Residential – New Homes
020 3296 3837
Jack Simmons
Partner
Residential - Investment
020 3296 4991
Fergus Jack
Partner
Residential - Investment
020 3296 4494
Neil Batty
Partner
Residential – Head of International
020 3296 4303
Jonathan Stickells
Partner
Valuation & Advisory
020 7152 5271
Nick Jacks
Partner
Valuation & Advisory
020 7152 5264
Jonathan Godfrey
Partner
Valuation & Advisory
020 7152 5760
Andrew Palmer
Partner
Residential - Land
020 3296 4033
Daniel McDonagh
Partner
Residential - Land
020 3296 4674
About Cushman & Wakefield
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Disclaimer
This report should not be relied upon as a basis for entering into transactions without seeking specific, qualified,
professional advice. Whilst facts have been rigorously checked, Cushman & Wakefield can take no responsibility for any
damage or loss suffered as a result of any inadvertent inaccuracy within this report. Information contained herein should
not, in whole or part, be published, reproduced or referred to without prior approval. Any such reproduction should be
credited to Cushman & Wakefield.
© Cushman & Wakefield April 2017
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