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Farmland Prices
Farmland prices in Wales have increased by over 21% on 2006 during the
second half of 2007, according to the RICS Rural Market Survey.
Prices rose by 21.4%, compared to 20.7% in the previous half. Demand for
residential and non-residential farmland continue to increase firmly,
particularly in the residential sector, although supply in that area stabilised
after picking up in the previous half. Land availability in the non-residential
sector continued to increase at the same pace.
Individual farmers’ share of purchases fell from 53% to 46%, while
non-farmers’ share remained constant at 40%. Institutional investors’
share increased from three per cent to seven per cent and agricultural
businesses share increased from 0% to 2%.
Increasingly, British farmers are rivalling Irish and Danish buyers in
the market. However, surveyors report that proposed changes to the Capital
Gains Tax regime could see conditions loosen as landowners seek to sell
before the April deadline to avoid paying a potentially higher percentage
of capital gains.
Cathy McLean, director of RICS Wales, said: “Rising commodity prices
have resulted in a bit of a feeding frenzy for farmland as farmers compete
with investors and foreign farmers for arable land. Supply may loosen
in the coming months as landowners seek to offload land before the changes
in the capital gains tax regime sees them out of pocket. However, with
the credit crunch taking its toll on the city, lifestyle buyers are expected
to retreat from the market leaving country living a mere dream for many.”
Online
retail boom
As growing numbers of consumers use the Internet for online shopping,
retailers are increasingly examining the most efficient and cost effective
way of delivering those goods to homes and businesses.
The report produced by Gerald Eve and commissioned by ProLogis was launched
at the ShedShow (6-7 February) at the Celtic Manor, and looks at the opportunities
and challenges of Internet retailing for the UK’s distribution and
warehousing market.
The ShedShow attracted 1,000 property professionals involved in the logistics
industry and is the biggest networking event in the sheds industry calendar.
With total online sales of physical goods expected to almost double to
£37bn by 2011, the report outlines that etailers will have to expand
their warehousing requirements to meet demand. But the size and type of
distribution facility they procure will largely depend on the size of
the retailer and its retail network; the volume and type of goods being
delivered; and the location of the customer.
It will also depend on which supply chain model they adopt; direct delivery
to the customer from the store; direct delivery from a national or regional
distribution centre or outsourced deliveries handled by third-party logistics
(3PL) providers.
Speaking at ShedShow, Sally Bruer, Gerald Eve research associate, commented:
“Growth in online grocery sales will probably not add much to the
demand for distribution floorspace given the preference of the supermarkets
to use their own stores to fulfil orders. At the other end of the spectrum,
retailers selling big, bulky items, such as furniture and computers, or
those in the clothing and footwear sectors, are more likely to continue
to operate national or regional distribution facilities, typically using
third-party providers.
However, among the greatest potential beneficiaries of the growth in etailing
are sorting and delivery centres of 10,000 to 50,000 sq ft and home delivery
platforms of under 20,000 sq ft in major catchments.”
The number of parcels delivered to online customers is expected to reach
860m this year, up from 540m in 2006. To cater for increased demand for
home delivery, a range of specialists have emerged, including Home Delivery
Network, iForce and Zendor, and delivery options have become more sophisticated.
Mass merchandisers like Tesco and Argos often complement large-scale stock
handling in their warehouses with home delivery platforms or transhipment
facilities in major urban areas.
“This is a relatively new field and is very different from the logistics
supporting traditional warehouse to store networks,” says Sally Bruer.
“Outsourcing to third-party logistics operators may enable retailers
to enter the online market more quickly, minimise interference to existing
logistics networks and provide flexibility for future growth and development.”
Downward houseprice trend
House prices fell yet again in Wales, making it eight months in a row
for worried homeowners according to the latest housing market survey from
the Royal Institution of Chartered Surveyors (RICS).
With enquiries from new buyers falling for the sixth month in a row and
at the fastest pace since August 2007, the only glimmer of good news for
homeowners in Wales is that the pace of house price decline eased back
slightly. However surveyor confidence in the outlook deteriorated even
further, reaching the lowest level in the survey’s history.
Instructions from new vendors fell dramatically, falling at the fastest
pace since March 2002 after offering hope by stabilising in December 2007.
While surveyor confidence in the sales outlook has improved, it still
remains negative.
Director of RICS Wales Cathy McLean said: “A lack of demand and confidence
in the housing market is clearly behind the recent price slowdown. Tightening
mortgage lending criteria is a block to many who are keen to take the
housing market plunge. Agents are finding it increasingly difficult to
market properties to an audience which has decided to watch the current
economic theatre from the wings.
However, if mortgage lenders filter the recent interest rate cuts into
the market, demand should begin to increase. In the near term, the housing
market will continue to be shielded from significant price falls while
employment conditions are strong. The market need only fear a significant
fall in prices if job losses start to multiply.”
Across the rest of the UK the RICS house price balance dropped for the
sixth month in succession signalling half a year of negative marketsentiment.
Over 54% more chartered surveyors reported a fall than a rise in house
prices, an increase from 49.1% in December. According to surveyors, the
only part of the UK where prices continue to rise is Scotland, with the
net balance of Scotland‚s surveyors reporting price rises edging
up from 3% to 7%.
The UK also saw the decline in demand pick up speed as new buyer enquiries
fell at the fastest pace since October. Prior to October, the previous
occasion when buyer enquiries reached this level was August 2004. 35%
more chartered surveyors reported a fall than a rise in new buyer enquiries,
down from 25% in December. The fallout from credit crunch continues to
prevent many would-be-buyers from entering the market and it is likely
that demand will remain subdued while mortgage lending criteria is tight.
This weak trend
in demand is having a visible impact on the market despite a lack of supply.
The stock of unsold property on surveyors‚ books jumped by more than
10% and has increased by in excess of 40% since September 2007. Currently
the average level of unsold property per surveyor stands at 85 - the highest
level since February 1999 when the average figure per surveyor was 86.
As a result the ratio of completed sales compared to the stock of unsold
property on the market fell to 28.6% down from 30.7.
The UK government has delivered another blow to the property industry over empty rates reforms, hitting it with a £1bn tax bill some six months earlier than expected. Michael Bruce, associate director at the Cardiff office of Atisreal, assesses the full impact on the industrial property market in south Wales of the ‘Rating (Empty Properties) Act 2007’ which comes into force on 1 April this year.
The crux of this new piece of legislation is to effectively abolish the empty rates relief currently enjoyed by industrial property owners for those premises which remain unoccupied. Whilst under this new legislation industrial landlords will still have up to six months to find occupiers for their empty industrial buildings before being liable for rates, it was initially thought that the rates ‘clock’ would only start ticking from 1 April 2008. However, the Government (echoed by the National Assembly for Wales) has now confirmed this is not the case and the worrying news for landlords in south Wales is that any industrial buildings that have been empty since 1 October 2007 will now be liable for a rates demand (assuming they are still empty) on 1 April 2008.
This appears to be a very shot-sighted policy by the Government of raising tax finance without considering the full impact of the property market. Although this will improve the coffers of the Treasury and Local Authorities in the shot term, the longer-term implications, particularly for those poorer areas of south Wales, appear to be far more serious.
Part of the Government’s reason for bringing in this legislation was to address the issue of so-called ‘greedy’ landlords in the strong occupier markets of London and the South East who have been prepared to leave buildings vacant in the hope of securing longer-term leases at higher rents. This very same reasoning cannot however be applied to many industrial landlords in south Wales, particularly those with properties in the more peripheral areas of south Wales (such as Tier 1 areas), who have part-let estates and have already been offering substantial incentives to tenants in an attempt to get their buildings occupied. The impact of this new empty rates legislation could therefore have serious longer-term implications in these areas.
For example, with 1 April 2008 fast approaching, many south Wales landlords may now feel compelled to agree cheap rental deals on short occupancy terms to tenants in order to pass on the rates liability. This may be positive for tenants in the short term, but could depress the rental market and the tone of rents for current and future rent reviews. This could then have a negative effect on the values of the landlord’s property portfolios, thus impacting upon the longer-term property investment market in south Wales.
Another major concern is that this legislation could stifle future new development in Tier 1 areas. Most private sector developers have previously focused on the Cardiff and Newport area where occupier demand is strongest and the risk of occupancy voids less likely. However, this has not always been the case in many Tier 1 areas and it is only very recently that the private sector developers have been prepared to invest and develop in these areas (following many Local Authorities’ reluctance to develop schemes in these areas for a number of years). Therefore the prospect of landlords/developers now being liable for rates on empty buildings could result in the private sector now less wiling to invest in these areas (even if still willing to speculatively develop in a Tier 1 area the payment of empty rates will have to be factored-in to their development appraisals, again depressing commercial land values in these areas).
Many industrial estates in south Wales are held by large institutions that will be able to swallow the additional holding cost of empty rates in vacant buildings within their portfolios. However, many smaller landlords may not be able to fund the added cost of an empty rates bill (for which they were previously unaccountable) and may be forced to sell some or all of their portfolios to larger institutions. We could therefore be faced with a situation whereby the smaller south Wales-based landlord becomes less influential within the local market.
Charities will still be exempt from the payment of commercial rates. We could therefore see many industrial buildings suddenly becoming occupied by various charities as a way of landlords avoiding the payment of rates.
We could also have a situation where a building that has been unoccupied for say four months and two weeks is suddenly occupied (maybe by a ‘shell company’ with little or no rent being payable?) for six weeks, before being handed back to the landlord (the Government are talking about a six week occupation period before the exemption can be reclaimed again). It is hoped that the clock would then start ticking again and that the landlord would have another six months to try and secure an occupier for the premises.
Many landlords may implement measures to avoid the payment or rates by making buildings uninhabitable. Such measures may include removing roofs from industrial buildings, resulting in these buildings becoming blots on the landscape. It will then almost certainly be harder for landlords to secure tenants for these premises, particularly for those with very shot lead-in periods. These industrial properties will then be inflexible to changes in market/tenant demand, and even less attractive to property speculators who may have otherwise considered investing in these areas.
At this stage it is unclear whether the Government has considered any anti-avoidance measures, and if so, how they will be contested in court. We shall wait and see.
However landlords be aware! We, as property agents, are already being targeted by the various local authorities rates departments enquiring which industrial properties are currently lying vacant, and trying to identify landlords. It is therefore clear that in south Wales rates demands are currently in the process of being drafted to hit landlords on 1 April 2008.
Concluding therefore this is, in my opinion, a very short sighted piece of legislation and the longer term negative implications on the south Wales industrial property market cannot be under-estimated. This is happening and landlords should seriously consider taking urgent measures now to avoid being liable for this tax in April. The next few months could be a very interesting time indeed in this sector.