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Monday Market Memo | UK regions outpace London in residential and hotel markets, while Trump hits China with tariffs

September 24, 2018Article by Paul Avery

Welcome back to our Monday Market Memo. 

AILING LONDON NOT CONTAGIOUS

House prices across the UK have risen by a respectable 3.1% over the last 12 months, according to the latest ONS House Price Index. Still dragging down the nationwide figure is London, with its bleakest figures yet pointing to a 0.7% contraction (compare that with its annual growth rate of 14.8% not three years ago). With 25.6% fewer transactions completing this May compared with the same month last year, the capital is firmly on ice.

Happily, the Bank of England has concluded that London is seen as far more susceptible to negative effects resulting from Brexit uncertainty, falling immigration, and rising interest rates, meaning that its dour market sentiment is unlikely to spread to the rest of the UK.

Indeed, it has been a good year in the farther reaches of the British Isles, with 3.2% annual growth in Scotland, 4.2% in Wales, and 4.4% in Northern Ireland. By Hometrack’s latest accounting, Nottingham is the UK’s hottest market, with the highest annual, quarterly, and monthly growth rate of the 20 cities measured, at 7.5%, 3.9%, and 1% respectively.

REGIONAL HOTELS EARN RECORD REVENUES

With a story eerily similar to the residential market, the outlook for UK hotels reveals a stark contrast between a flagging capital and steady regions, with revenues per available room in the provinces on track to end 2019 23% higher than their pre-recession peak.

PwC’s new annual hotel market forecast notes that occupancy rates rose from 66% to 76% between 2009 and 2015, with that level likely to be maintained through to 2019 despite the addition of over 40,000 new rooms in the next two years. Average daily rates are forecast to rise by 1.3% this year and 1.2% next, lifting average rates to £73 per night.

However, the forecast suggests that economic uncertainty and weaker demand for business travel are expected to dampen hotel trading growth in London, where occupancy growth has stalled at 0.1% in 2018. Average revenue per available room is forecast to remain static at £122 through this year and next, though the report’s authors concede that ‘2017 was a hard act to follow for hotel trading’. Preserving profitability in London will involve controlling costs, especially if the EU labour force dries up.

Investors remain enthusiastic, with total deal volume in the UK hotel sector 34% higher in 2017 than 2016, and an epic 80% increase in the first half of 2018 setting a new record.

CHINESE PROPERTY THRIVES WHILE TARIFFS KNOCK STOCKS

New trade levies unleashed by the Trump administration bring the total value of imports from China that are subject to tariffs to nearly $200bn. That means that 44% of all Chinese imports are affected. Not coincidentally, the Chinese stock market is down nearly a quarter from its peak in January this year.

Though the attendant economic certainty is no good thing for the rising power, China’s property market is going from strength to strength – perhaps reflecting a rush on tangible assets insulated from trade tantrums. New home values rose by 1.2% in July alone across China, with particular boosts for second- and third-tier city locations.

The aftereffects of the mounting trade dispute could also benefit other low-wage Southeast Asian economies like Vietnam and the Philippines, which stand to absorb manufacturing jobs lost by China’s tariff-bound exporters.

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Author

Paul Avery

Paul joined us in 2016 to lead our in-house research efforts, producing reports and guidance for clients as well as the strategic market analysis behind our new project launches. His background is in sustainability in the construction sector, and he is currently being trained in property valuation to further bulk up his investment creds.
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