Leeds Property Investment News

[Mindy]

The market
Spring may yet come and go with little sign of housing market recovery and with growing concerns about the wider housing market. The biggest threat to short term values in the city centre is the re-doubled impact of negativity on a micro market where values began adjusting probably as much as 18 months ago. Market commentators know above all else that the housing market does not operate as a single market. Geography, economics, transport, schooling and demographics are all highly significant factors in determining local area property values and as the FT reported this weekend, whilst property values are falling in half of all postcodes, they are actually static or rising in the other half.

Rental demand remains very strong although we are having some difficulties with a number of agents who are headlining cheap rents across the board. Whilst it tends to be the web based agencies that do this, we are also seeing worrying signs of some of the high street agents following suit. We fully understand that some landlords will instruct their agents on occasion to reduce rents particularly to get a newly completed apartment let but this should be the exception rather than the rule. It is in no-ones best interests to drive rents down and we are working hard to do what we can to ensure that rents hold up. The city living survey of 2007 quite clearly showed that most tenants are paying less rent than they can afford - we believe that this is partly due to the perception that the city centre is a cheap option, partly due to the perception of a lack of amenity and convenience shopping but principally due to the impact that the advertising of cheap rents has had.

The re-sign rate in March fell back from April’s peak, to around 49%, which is more sustainable and manageable and we would hope that this level will be maintained throughout the year.

City centre pipeline
It now seems clear that the projected pipeline of apartments, which has been widely publicised as being over 20,000, is coming sharply into focus as a consideration for all parties engaged in the city centre market. Landowners have undoubtedly underpinned their land value by gaining planning permission for high density residential use, without actually considering whether or not the proposed use is commensurate with likely market depth and demand. Large scale schemes in peripheral locations have contributed significantly to the total pipeline figure and yet it is highly unlikely that they will be built in the current property cycle. Irrespective of the lack of speculative off plan buyers, bank finance for these schemes is now increasingly scarce as the institutions wake up to the realities of today’s market.
We said some time ago that we believed that the number of city centre apartments would grow by around 5-6,000 over the next ten years or so and even this projection will only crystalise once we are able to understand the impact of the slowdown we are experiencing. This throws up some significant challenges, both in terms of the impact of slowing demand on the value of land which is currently earmarked for high density residential, and the role which high density residential development would have played in breathing new life into peripheral gateways and corridors.

Leeds Fights Back
Our campaign with King Sturge to redress the balance in the national media regarding city living in Leeds has shown some great results. Recent coverage includes the BBC 10 o’clock News and the Yorkshire Post and there are up-coming features due in the Estates Gazette, Property Week and Property Investor News. We are hopeful that our sustained campaign will have the desired effect which is to achieve some sensible and proportional coverage. We have presented a range of information to various journalists, including year on year rent averages, enquiry levels and take up, an overview of the diminishing pipeline, likely new developments and a comparative view of peer cities. We are also currently talking to YTV about a documentary that they are going to be making about city living in Leeds.

Interest rates and lending
With a ¼% fall last week, the third since late last year, base rates now sit at 5%. On the surface, this is very good news for existing and future borrowers but there is some concern that lenders might continue to hold off from passing these cuts on. On this occasion however, and in light of considerable public and governmental pressure, it would seem that most of the major lenders will be transferring, reflecting the base rate fall in their standard variable rate. The real problem is the price that many lenders are having to pay for their funds on the money markets, where supply is stifled. The interbank lending rate (LIBOR) is still significantly higher than it has been and whilst lenders have been charging something like a 0.2% premium on monies they have been lending over the last year or two, this margin has now reverted to the 1% which the lenders have always historically charged.