Click here to read a very amusing PDF email exhange called ”For Free“.
Thanks to Joseph for circulating it.
Rally Fighter car built tweet by tweet
I noticed this amazing car and fascinating story in the Sunday Times the other day and thought I’d share it with you. The off-roader built tweet by tweet.
It highlights the momentum that crowd sourcing is building up, and suggests it is likely to be much more broadly adopted in the years ahead.
A company called Local Motors in the US has built a car they’ve called the Rally Fighter using open source production techniques. This basically means fans/members of their website have submitted their ideas by email or twitter for every aspect of the car.
Harnessing the wisdom of crowds like this not only helps companies/entrepreneurs provide better products and services but it also guarantees sales. If the customer has invested their time/ideas throughout the development process they are far more likely to buy the end product – there are many reasons for this one of them is because emotionally accepting a loss (writing off any investment) is twice as hard to do as cashing in a profit.
I’ve also recently come across (random connection through Twitter) a superb financial services company called Redington who are doing things very differently (better) and among other things (including Mallow Street) using technology to tune their presentations on-the-fly depending on the active preferences of their audience.
The skill appears to be in the facilitation of open source brainstorming and/or the aggregation of these ideas. At Inspired we’re looking to develop an online/offline community to help investors and their advisors. Ultimately we’d like it to harness decision markets – where a contribution currency will provide a non-financial incentive and encourage participation. Jaime Steele may have already solved the contribution/karma currency bit for us.
Exciting and innovative times ahead. In my humble opinion social media really is the biggest shift since the industrial revolution and the pace of progress will clearly accelerate in the years ahead.
What do you think will be be the most exciting developments in 2010?
Martin
Safety In Numbers
The debate over our recovery from recession continues to rage and provides an amazing insight into the different ways economic facts and figures can be interpreted. Forecasting is a tough game these days and I will simply express my opinion that we are experiencing a recovery more akin to a craggy[rock]-V than a W or an L for example. This is based on historical rebounds and the remarkably rapid global response to the credit crunch in the following three key areas:
- Loose fiscal policy through a) reducing taxes and b) increasing spending
- Highly stimulative monetary policy (low interest rate) and
- Vast quantitative easing campaign.
Even with this huge boost and my optimism we are being regularly rocked by shocks. Last weeks’ Dubai debt crisis for example combined with end-of-year profit taking removed a good chunk of the years stock market gains. Markets are nervous, investors are nervous, workers are unemployed and it’s going to take time for confidence to build.
So, in this uncertain climate how can investors profit whilst still hedging their bets against the downside risks? A focus on location, cashflow and occupier demand will help. Our chosen location is London where occupier demand is assured. A cashflow boost is possible through servicing the undersupplied student and young professional markets (and multi-letting). Demand constantly outstrips supply, rents are rising again and the low currency rate is tempting investors to the city. Other strategies also work and the moral of the story is rather than running for cover each time we get hit by an aftershock we should be looking to adapt to the uncertainty/turbulence and push forward with an effective strategy and subsequently confidence in our abilities.
We will be exploring many of the issues involved in investing in student and young professional accommodation at our next event at the May Fair Hotel in London on the 11th February. More details closer to the time.
In Other News:
David Smith – Alistair Darling’s balancing act: cut deficit or win votes
John Waples – Bosses’ bonuses will be next under the spotlight
Irwin Stelzer – Now Barack Obama gets down to work on job creation
And some funnies from the Sunday Times:
- One for the naughty step – A masked robber who held up a restaurant at gunpoint was recognised instantly by the manager: she was his mother. Jason Zacci’s face was covered by a bandanna as he threatened staff with a sawn-off shotgun and tried to grab cash from the till at the Wendy’s restaurant in Dearborn Heights, Michigan. His mother also recognised the getaway driver, his girlfriend Amanda Yost. (The Sunday Times)
- To pee or not to pee – The mayor of Delhi has launched a campaign to stop people urinating in the streets. Kanwar Sain wants to clean up the city’s image before it hosts the Commonwealth Games next year. Posters have been stuck up around the city urging: “Don’t be Mr Wee-Wee”.
- Trucker chisels DIY tunnel – Ramchandra Das, a lorry driver, used a hammer and chisel to tunnel his way through a mountain just so it would be easier to park his truck. The 53-year-old from Bihar, India, took 14 years but said it was worth it. “I had to leave my truck miles away, so I decided to do something about it myself,” he explained.
- You may now Tweet the bride – Forget kissing the bride; an American groom, Dana Hanna, had a better idea when the minister declared the couple man and wife. He whipped out his mobile phone and changed his Facebook status from “in a relationship” to “married”. He then sent a Twitter message, “Standing at the altar with @TracyPage where just a second ago, she became my wife! Gotta go, time to kiss my bride.” Before that, however, he handed over her BlackBerry so she could do the same. Hanna, a software developer from Maryland, said after the service: “This was just done to be funny. We really don’t Facebook that often.”
Home Economics: Can taxes control house prices?
By David Smith
With some people arguing that we have not yet got through the bust, thoughts are already turning to how to stop the next house-price boom. Adam Posen, a member of the Bank of England’s monetary policy committee, argued last week that interest rates alone would not be enough to stop prices from getting out of hand in the future.
One way to do so, he suggested, would be to vary housing taxes according to the economy’s position in the cycle. So, when prices are rising too strongly, stamp duty should rise to deter buyers. Other taxes could also be used to cool over-exuberance. When the market slows and prices fall, such levies could be cut. We have, of course, seen a stamp-duty holiday on properties below £175,000 during this recession.
Could such a variable tax work? There is a month of data to go, and anything could happen, but it seems clear that on the Nationwide Building Society’s measure, house prices will end the year higher than they started. Prices rose by 0.5% last month, up 8.3% on their February low and 2.7% on a year earlier. Because prices fell sharply in December last year, even a flat figure this month would ensure that prices end 2009 more than 5% higher.
This was not in the script. At the end of 2008, house prices were falling at such a pace that few saw them stabilising, let alone recovering. The average prediction was for a 10% drop in prices during 2009, and several leading forecasters predicted a 20% fall.
This year’s experience shows how hard it could be to set a variable tax. Triggering an increase in duty each time, say, house-price inflation went above 10% would be fraught with difficulty, although we should not reject the suggestion out of hand.
Posen’s proposal was not the only tax idea doing the rounds last week. The Liberal Democrats modified their “mansion tax”, which would now apply only to homes worth more than £2m. Taxes, as we all know, will be going up in the next parliament, whoever wins the next election. And that in itself may be enough to cool any boom.
More than one in three tenants expect their rent to rise in the next year, according to a consumer-confidence survey conducted by Rightmove. The website also found that, of the 35,000 people questioned, almost two in three were renting only because they could not afford to buy. (David Smith, The Sunday Times).
Learning to walk again
My new ’social’ life: Learning to walk again
In many ways I now see myself as having started my life over again in 2009. I’ve always been a fortunate soul and believe I’m lucky to have a ‘glass half full’ attitude. Even so, my last ‘life’ concluded painfully after a glorious period I think I’ll call my roaring 20’s.
Magda, I & Gumpert Apollo
My last life
A Nice Group team meeting
With a background in technology, I deserted the world of direct employment in 2003 to embark upon an unforgettable entrepreneurial property adventure. For seven years I worked hard to build up the ‘Nice’ brand. It began with my own property portfolio followed by a property services group (run together with my partners Paul and Guy) before eventually hitting the heady heights of joint venturing with big City fund managers. It was a fantastic journey and I met and learned from a great deal of amazingly intelligent people.
Example Nice Room Bedroom
Lettings cars
Tenants' welcome pack
In Nice Group my partners, friends and I had built up a substantial enterprise with a magical atmosphere. Our staff actually wanted to come to work, bold plans were made for creating a new asset class for affordable young professional accommodation – and there was much, much, more to come… until disaster struck in the form of the credit crunch. After a gruelling period of redundancies through 2008 we were effectively wiped out in March 2009 when our financing was pulled with just 24 hours notice. Worse still, we were due to hit profitability again that month so heartbreaking stuff. The following months were not the happiest of times and I don’t dwell too much on them. These things happen, so learn from them and move on. So without further ado I’ll move on to my new life …
My new ’social’ life
I never considered looking for a traditional 9-5 job. I’d got a taste for building up a business and I wanted more. So I threw myself into helping a couple of friends plan a new business. Pledging to revolutionise the way fund managers treat their partners and their customers, the concept for Inspired Asset Management was born. Simon Hussey is the financial services expert and Alistair Britton covers the legal, financial & private equity fund raising bases – and they’re both brilliant to work with. I look after the branding and marketing, with help from a group of exceptionally talented friends and contractors.
Now I’ve always been a pretty hardcore networker. I love meeting new people and connecting them up with people that can help them – and London is a great place for it. But apart from signing up to a few sites and occasionally chatting to people on Facebook, I hadn’t really followed what was happening in the world of social networking/media. I was too busy running my businesses.
But now I suddenly had the chance to immerse myself in an online world where you can meet, connect to and build relationships with pretty much anyone and everyone. Soon I began developing a strategy for Inspired to develop, market and support products through social media. And it led me to one of the first people to come up with the concept of search engine marketing – David White of Weboptimiser. His webinar about Twitter got me interested in an application that I had previously thought to be purely for pointless ‘celeb’ chat/following. David has provided superb and effective online marketing advice ever since – although my genius copywriter Mark will never forgive him for his grammar. I’ll be forever grateful to David for getting me started and keeping me on the right track.
Around the same time, I met a remarkably helpful American gentleman by the name of John Corey, who appeared to spend his whole time helping property investors, including me, to invest better. For the [second] life of me, I couldn’t figure out why he would be so generous without trying to sell me something, charging any money or even asking for a role with Inspired. I later discovered he attracted a considerable following both online and offline – and suddenly everything made sense. John is a true gentleman as I’m sure those who know him fully appreciate.
Burning Man
By this time it was August 2009 and a long-since-booked first pilgrimage to an event called Burning Man beckoned. I say ‘first’ because it was such an astonishing experience I can’t for a moment imagine it’ll be the last. And I say ‘pilgrimage’ because it provides so much meaning for so many of the people who attend. Burning Man is a collaborative social experiment that’s been running for nearly 25 years, yet is almost impossible to describe because of its sheer magnitude. Instead, I’ll let you try and make sense of a list of random facts, figures and rumours:
- Started on Baker Beach in San Francisco in 1986.
- 4th largest city in Nevada for one week then vanishes without a trace
- “The Man is a wooden monument to nothing specific, in the middle of nowhere” – The Burning Book
- Highest concentration of billionaires in the world for one week
- 50,000+ people, survival conditions, middle of the desert
- Mix of Mad Max, Hunter S Thompson and The Grateful Dead for all ages
- Astonishing celebration and spectacle of endurance, art, music, comedy, spirituality etc
- Pure gift economy
In my opinion, Burning Man has a lot in common with social media – particularly with its gift economy. I doubt that it’s a coincidence that Burning Man takes place so close to San Francisco and is frequented by so many movers and shakers from there. It’s a seriously, fabulously crazy place and an experience that will inevitably affect my future endeavours. If nothing else, it’ll make any events I help to organise a lot more fun.
Back to reality and a ‘bump’
Big Little Baby
Wow, the unsung heroine and love of my life, my gorgeous and incredibly supportive fiancé Magdalena is pregnant. Magda’s indomitable strength and determination have never ceased to amaze me. Combined with my insatiable entrepreneuring, I can’t wait to see what kind of little maniac our offspring turns out to be. It does up the ante though and will require us to put new foundations down and establish a replacement income pretty quickly.
Both our mums have been superstars. They’ve helped us financially and emotionally throughout and will be there to help us when the baby arrives.
Adapting fast
I think it’s fairly safe to say that social media is going to accelerate the rate of progress and dramatically change the worlds of education, work and leisure over the next few years. The way information now flows around the web in real time allows people to learn faster and more collaboratively, so much so that working practices will inevitably have to adapt and evolve.
While investigating opportunities for promoting the first Inspired property fund to financial advisors, I came across Philip Calvert who runs IFALife.com – a very successful social network for financial advisors. Phil kindly agreed to speak about social media at our launch event in October. He also recommended Penny Power’s book Know Me Like Me Follow Me.
Penny’s book is a great read and provides a rare heartfelt view into a world of individual capitalists competing on almost equal footing with the big corporates and building their own personal brands. The stories she tells about learning from her children also give great insights into where the original demand for social networking sites first came from. After reading the book it only seemed right to join their online social business network Ecademy.com – another superb find that deserves much praise for its innovation and emphasis on sharing knowledge and skills.
Nick Tadd and his wife Vanessa Warwick provide an excellent example of entrepreneurs embracing successful new ways of working in this brave new world. They’ve founded and encouraged a number of new enterprises and online/offline communities. They’ve dedicated their property and social media activities to honest sharing and mutual benefit. In fact, I paid for a days’ coaching with Nick and it was probably been the best investment I’ve ever made. Even Tim Watts, or the ‘man from the Pru’ as I like to call him because of his natural aversion to technology, was convinced and went away to buy books on blogging.
Tim has joined Inspired after running the largest listed residential property company in the UK and he’s an icon in the industry. It was a real coup to get him onboard, and for me, the first sign that our efforts to brand the business well and create new working practices are starting to pay off. Coming just at the point where I succumbed to personal bankruptcy, Tim’s arrival couldn’t have been better timed: a vote of confidence that provided me with a much needed dose of fresh inspiration.
The supremely educational meeting with Nick Tadd led to my joining the 4Walls and Property Tribes social networks. I also upgraded my Ecademy membership to Blackstar status and subsequently met some great characters including William Buist, Judith Germain and Clare Gilbanks. A more supportive group of people would be very hard to find.
Most recently I had the pleasure of joining 10 other social media devotees on a two-day retreat with Thomas Power in Surrey. Thomas taught us how to clearly express our key personal values and then link them up with our contacts across a variety of different networks. A rare group of great human beings – I hope to stay in contact with them for a long time.
Learning to walk again
It’s been a remarkable journey so far and I’ve had the pleasure of meeting an incredibly rich and diverse mix of new people, many of whom I haven’t yet mentioned. I’ll make up for this in future blogs.
Yes, I’m still an entrepreneur. Yes, I’m still a residential property investment specialist. But today, sitting here right now, I’m also a social media evangelist.
So how does it all combine? Well, the Inspired Urban Share fund has achieved its first close and can now start buying properties. We’re working to develop an investment community with financialtribes.com – many thanks to Nick Tadd for the name, and to Jamie Steele who was at the social media retreat and is building the platform for me. I have some exciting ideas to develop on it including a contribution currency and a decision market. And our launch event went well with another planned for the 11th February.
In keeping with the gift economy leanings of the social media universe, the Inspired launch event was an educational and entertaining affair. PowerPoint presentations were banned and we didn’t overtly promote our products. It went brilliantly and caused a real stir with our audience – and it was great fun too. Good connections were made all round in the bar and I’m hoping it will be the first in a long line of future events, attracting more and more investors and advisors to our cause.
What I do find slightly bizarre at the moment is finding myself introduced to senior investment and property professionals as a social media expert – a title certainly not yet deserved, but one that demonstrates that opportunity awaits anyone prepared to adapt quickly and incorporate social media into their business and social lives.
So when it comes to reinventing myself I think I can say so far, so good. But I’m not calling it a comeback … not just yet.
Some key messages on social media from my journey so far:
- “The biggest shift since the industrial revolution” – Erik Qualman
- “The group gets better together” – Clay Shirky
- “You should focus on creating a web of findability” – Nick Tadd
- “Be random, open & supportive” – Penny & Thomas Power
- “Serendipity occurs more often in a collaborative environment and more frequently the larger the breadth and depth of your social network” – Penny & Thomas Power
- “Given the right conditions and the right problems, a decision market’s fundamental characteristics – diversity, independence, and decentralisation – are guaranteed to make for good group decisions. And because such markets represent a relatively simple and quick means of transforming many diverse opinions into a single collective judgement, they have the chance to improve dramatically the way organisations make decisions and think about the future.” James Surowiecki
- And most importantly “It is not the strongest of the species that survive, nor the most intelligent, but the most responsive to change” – Charles Darwin
Home Economics: Buy-to-let breathes again
By David Smith
In the darkest days of the credit crunch, one claim was made so regularly, you might have believed it. This was that buy-to-let was dead, a victim of a housing boom that had turned to bust. “Bye-bye, buy-to-let” was an irresistible headline. We now know reports of its death were exaggerated. Cluttons estate agency reports a 40% increase in demand for property – concentrated around the £500,000 mark – from professionals such as solicitors, accountants and doctors investing for the first time.
This will displease the moaners, but a functioning private rental sector is necessary for a healthy housing market. Private landlords took a battering and faced funding difficulties as severe as anybody. They appear to have weathered the storm.
Figures from the Council of Mortgage Lenders (CML) showed gross buy-to-let lending grew in the third quarter, its first rise for two years, with a rise from 21,600 to 23,700 in the number of loans and an increase to just over 1.2m in the number of outstanding mortgages.
Admittedly, the rise was from a low base, but this was a clear sign of life. “The figures show buy-to-let is here to stay,” says Michael Coogan, director-general of the CML. “Future demand for housing in all tenures supported by lenders will remain strong, despite mortgage funding constraints and low construction rates. With funding for social housing under pressure, the private rented sector has a strong future.”
The other buy-to-let story – the expectation of a flood of arrears and repossessions as landlords faced grim reality – is not going according to plan either. The number of buy-to-let mortgages with arrears of more than 1.5% of the balance has fallen for the third quarter in a row and stands at just 20,500.
As with other parts of the housing market, this is a slow climb back after the huge shock of an abrupt withdrawal of mortgage availability. Moneyfacts.co.uk says the number of buy-to-let mortgage products has risen by more than a third from its September low, which sounds impressive – except that this is still 93% lower than its August 2007 peak. Sensibly, deposits of at least 20% are required, which was not the case in the past. Like it or not, buy-to-let is still alive.
Housing markets in the world’s leading economies are continuing to recover, although the majority are still lower than this time last year, says the Global Property Guide (globalpropertyguide.com). Israel has been the strongest performer, with prices up by 13.7% in the year to the end of September. The sharpest fall was in Latvia, down 59.1%. (David Smith, The Sunday Times).
Dubai – gets that sinking feeling
Building expensive villas on man-made islands with little protection from erosion always seemed pretty bonkers to me. Brilliantly bonkers. Was Dubai’s economic miracle nothing more than a mirage? Or is an unfortunate victim of an unprecedented global financial crisis.
Dubai’s brash and ‘blinging’ approach has been pretty uncoordinated and in the past when I visited it I found it soulless. I wouldn’t want to live there.
Having said that it has certainly been a beacon for both Western and Eastern capitalism in the region and while its mineral-rich neighbours initially saw it as an upstart, they then copied many of its innovations – free trade zones, massive transport infrastructure upgrades, freehold property ownership, moderation towards other religious & cultural beliefs etc.
And it has a brighter future. Dubai may be overleveraged but it has plenty of assets still and some significant competitive advantages in the region. It also has friends in high places. Including some incredibly wealthy friends and family in the area (particularly in Abu Dhabi & Saudi Arabia) that will invariably support it. Its ‘friends’ will probably loot a few gems in the process, its Emirates airline for example, but they will stand by their neighbour and defend their own pride and western lenders will be able to breathe another cautious sigh of relief.
Currently it looks to me like the reverse leverage brinkmanship game that’s been played out between banks and borrowers throughout the West for 18months or so now. It’s just being played out middle-eastern style. Dubai has presided over an economic miracle and doesn’t want to give up control of its trophy asset (Emirates). Abu Dhabi has all the cards at present and is almost certain to get its way – in picking assets. However It will provide the necessary guarantees.
I’m sticking to my prediction that we won’t suffer a double-dip or a “W-shaped recession” however it’s clear the global recovery isn’t going to be a smooth one – Alan Greenspan’s forecast for a much more turbulent economic period continues to look very prescient.
From an entirely biased perspective (please excuse me) I hope it will encourage get-rich-quick speculators to focus on fundamentals like supply and demand and we’ll attract a bit more money back to relative safety in London.
For some great reading on the ‘Dubai Debacle’ check out these links:
- John Arlidge (The Sunday Times) – Just deserts
- Jennifer Hill (The Sunday Times, Money) – Dubai debacle stops bull run in its tracks
- James Ashton (The Sunday Times, Business) – Abu Dhabi rides in to save Dubai
- John Waples (The Sunday Times, Agenda) – Dubai’s debt crisis should be a lesson to us all
- Nick Mathiason (Guardian.co.uk) – UAE central bank guarantees Dubai banks’ debt to head off crash
Mortgage lending rates increased – are they taking the …. ?
By Martin Skinner
Yesterday’s Sunday Times money section details a number of margin increases on mortgages by UK banks; mostly the government backed ones. Cheltenham & Gloucester (Lloyds owned) has increased its tracker rate for its 90% LTV product to 5.49% over base – 5.99% at present.
I’m an interest rate ‘dove’ meaning I believe interest rates will remain low for at least a couple of years. This is despite a substantial increase in inflation that’s due around the time the VAT rate returns to 17.5% in January. And despite my belief that a drop in house prices (a ‘double-dip’) is unlikely next year and my expectation that economic growth is likely to surprise on the upside.
5.49% over base for a mortgage though?! That should really come with a public safety warning notice. When base interest rates do finally return to their ‘normal’ position after this crisis has passed of around 5% that would leave borrowers paying 10.49%. More if rates have to be increased further in order to slow the economy again.
With such limited competition out there for lending still borrowers need to take extra care when arranging their loans. With such huge margins the banks will inevitably be declaring big profits soon and competitors will enter the market – in turn improving the offering for borrowers again.
Surely sticking with much lower margin mortgages has to be the way forward for now even if it means putting down larger deposits? Then negotiate bigger mortgages on fixed rates in a few years time when competition returns and future interest rate rises are more likely.
Additionally here’s my roundup of the best of the recent news:
- Elizabeth Colman (The Sunday Times) – Mortgage rates up ahead of ‘double dip’
- David Smith (The Sunday Times) – The nutters can relax but only for a while
- David Smith (The Sunday Times) – Mind the housing supply gap
Mind the housing gap
By David Smith
The Queen’s speech, published last Wednesday, sets out the areas the government considers important in the year ahead. Britain’s impending serious housing shortage, one must conclude, is not a priority.
True, this was a speech designed to extract maximum political advantage for the government in the months left before the election. And true, not all changes require legislation. But the need to build many more homes in Britain, and thus improve affordability, which was once such a priority for Gordon Brown, has slipped off the agenda.
When he was chancellor, this was a big issue. Britain needed 240,000 new homes annually to meet demand and hold down house-price inflation. Though the housing market has changed since that target was set, the underlying picture has not. The UK has 61.4m people, and official projections are for this to rise to 63.5m by 2013, 67.8m by 2023 and 71.6m by 2033.
How far are we running behind the target? The National House-Building Council reports that it received applications to build just under 25,000 new homes in the three months from August to October: 27% up on the same period last year, but still barely more than a third of the target. While the builders are increasing their output, it is from a very low base. Government initiatives, meanwhile, most of them launched in a blaze of glory, have either been forgotten or scaled back to the point of irrelevance. Remember the £60,000 home? How about eco-towns?
The slump in new housing supply has, of course, helped to prop up prices, thought not as much as the “sellers’ strike” by existing homeowners. But it is storing up serious problems for the future.
Stuart Law, chief executive of Assetz a property investment company, says: “The current undersupply of property is likely to worsen, as house builders struggle to deliver any substantial increase in new properties in 2010. Developers are only going to be building about 100,000 units next year, whereas at the peak this was around 180,000 units a year.” The market will stay thin, which will support prices, but it is a long way from normal. Judging from the Queen’s speech, the government has run out of ideas about what to do about it.
Gross mortgage lending last month was an estimated £13.5 billion, up 5% from September, but down 27% from £18.5 billion 12 months earlier, the Council of Mortgage Lenders says. It reports that the number of loans to buy new homes has picked up significantly in recent months, but remortgaging has dropped to levels last seen a decade ago. (David Smith, The Sunday Times).
UK Property – Residential vs Commercial
My last two blogs discussed what I believe to be understandable but over-stated concerns of a double-dip in the UK economy in 2010.
This week I’m going to dig into the reasons behind the recent outperformance of residential property as compared with commercial property and would love get some feedback from readers.
In broad terms commercial property values in the UK fell approximately 40-50% from the peak of the market in 2007 to their trough in early 2009 whereas residential property in the UK fell approximately 15-25% from peak to trough. Both have rebounded somewhat as the fears of complete financial and economic collapse have faded.
Why has commercial property fallen so much more than residential and how are they likely to compare in the years ahead?
Private vs Institutional Investment
The residential property market is a lot more granular than the commercial proeprty market. Most residential properties are owned by their occupants – far more so in the UK than in Europe for example. Commercial properties tend to be owned by large (typically institutional) investors. The two markets though linked in many ways therefore operate differently.
Purchases are typically larger and long lease terms are the norm (usually 5/10 years minimum). Each tenant also tends to take more space and be responsible for the repairs, insurance and general upkeep of the building. By comparison lease terms for residential properties are generally very short (6/12 month AST’s) and the landlord is typically responsible for the buildings insurance and maintenance. It’s therefore a lot easier to invest a large sum of money in commercial property.
The ease to which money raised could be deployed & managed innevitably played a significant role in the type of property it was invested in.
Occupier Markets
When the economy took a big hit tenants had to cut their overheads and of course the space they occupy makes up a large proportion of the overheads for both businesses and households.
It’s here the supply and demand dynamics diverge significantly for commercial and residential property. Just before the credit crunch even as housebuilders were merging, leveraging and generally overstretching themselves there was a great deal of discussion around the undersupply of homes for people to live in. The same was not the case for commercial property.
Future Trends
I believe developments in technology and working practices are going to have a profound impact on the way we live and work.
Most notably employers can’t offer the ‘job for life’ anymore and flexible working has both been encouraged and demanded in response. In economic terms this is a good thing – flexibility and de-centralisation of planning encourages personal responsibility and greater productivity. This will lead to more people working from home and part-time from serviced offices. Social media is also going to accelerate this trend and lower growth in demand for large floorplate formal office space is therefore likely.
The growing pensions crisis combined with the shock many households have experienced recently is also likely to have at least some effect on peoples saving patterns. People are likely to save more and spend less. Combined with the trend towards shopping online growth in demand for space shopping centres is likely to reduce.
By comparison we are likely to continue to attract high levels of immigration from abroad (particularly Eastern Europe) and therefore growth in demand for residential accommodation is likely to persist.
Summing Up
Institutions will continue to struggle to deploy large sums of capital into residential and will maintain their focus on commercial despite consistent historical outperformance by residential.
Both commercial & residential production capacity (supply) has been significantly impaired for at least 5 years.
Residential property has the most compelling argument for future demand growth and in my opinion rents are therefore set to rise fastest for residential property – in the best areas (most notably in London) examples of significant rental increases are already becoming commonplace.
Do you agree? Either way, what trends do you believe will significantly influence these markets in the coming years?
Additionally here’s my round up of the best of the recent news:
- David Smith (The Sunday Times) – Bank says let’s party like it’s 1994 again
- David Smith (The Sunday Times) – We’ve come a long way
- James Whitmore (Property Week) – Hermes investors join ‘queue’ for new units
- Peter Williams (ASOS) – How the internet has changed the retail paradigm forever
- Simon Rubinsohn (RICS) – Databank: house prices rise
- James Whitmore (Property Week) – Property values rose by 1.9% in October
