WEBVTT - Decoding the UK’s Property Market ‘Standoff’ 0:00:00.720 --> 0:00:03.079 So here we are talking about the UK property market. 0:00:03.480 --> 0:00:06.640 Yet again, what we're trying to figure out, because let's 0:00:06.680 --> 0:00:09.160 face it, it's a national obsession, much like the weather, 0:00:09.840 --> 0:00:12.720 is where house prices from here go, and also trying 0:00:12.720 --> 0:00:18.800 to figure out what happens to commercial real estate. Welcome 0:00:18.840 --> 0:00:21.119 to in the City of Bloomberg's podcast, connecting you to 0:00:21.200 --> 0:00:23.400 the conversations at the heart of the City of London. 0:00:23.680 --> 0:00:27.280 I'm Francine Laquana. This week Temperature Check on really where 0:00:27.320 --> 0:00:30.639 things stand for both houses and offices across Britain and 0:00:30.760 --> 0:00:34.839 exactly how scary are things looking. For that, we bring 0:00:34.880 --> 0:00:37.680 in the experts, senior reporters Jack Sitters and John Steppeck 0:00:37.880 --> 0:00:42.400 and Sue London, a senior property analyst with Bloomberg Intelligence. John, 0:00:42.479 --> 0:00:45.920 you've been to Barcelona, so you're basically not that happy 0:00:45.920 --> 0:00:48.159 about being back because the weather is not as good 0:00:48.159 --> 0:00:50.000 as it could be and house prices are probably highed. 0:00:50.040 --> 0:00:52.600 Did you do any property porn looking? 0:00:52.800 --> 0:00:55.560 I'd say, did? Did you did? I'm sort of embarrased 0:00:55.760 --> 0:00:59.280 met that, because you know, I should be above these things. 0:01:00.000 --> 0:01:02.120 Were staying in a really nice bit of Barcelona and 0:01:02.120 --> 0:01:03.640 it's like one of these nice kind of like town 0:01:03.720 --> 0:01:05.679 flats and I was thinking, oh, wondering much this is, 0:01:05.680 --> 0:01:07.320 and then when I realized it was two million years, 0:01:07.480 --> 0:01:09.080 it was like, what, No. 0:01:09.160 --> 0:01:11.039 John, I only trust people that do that. I mean, 0:01:11.040 --> 0:01:12.600 if you go on holiday and have a nice time, 0:01:12.640 --> 0:01:14.720 why would you not, you know, pop by the estate 0:01:14.760 --> 0:01:16.440 agent to have a look at how much prices are. 0:01:16.920 --> 0:01:18.399 It's true, it's just I like to try and be 0:01:18.520 --> 0:01:21.520 zen about these things. I was just enjoying my holiday, 0:01:21.720 --> 0:01:24.679 take a break from worrying about property prices. 0:01:25.200 --> 0:01:27.720 Your newsletter is a bit scary, right because it talks 0:01:27.720 --> 0:01:29.880 about the UK housing market once again being in the 0:01:29.920 --> 0:01:32.000 balance to a bad well. 0:01:32.040 --> 0:01:34.880 I mean it depends like if you're looking to buy 0:01:34.880 --> 0:01:37.479 a house then that's probably for better. But I mean 0:01:37.720 --> 0:01:42.399 overall too, I think the UK economy is too driven 0:01:42.440 --> 0:01:46.120 by kind of the property market, not even driven by 0:01:46.120 --> 0:01:47.800 a bit. It's kind of held back a bit by 0:01:47.840 --> 0:01:51.320 the perception that basically that's the only asset that spot 0:01:51.440 --> 0:01:54.760 investing in in this country, and from a retail investor 0:01:54.760 --> 0:01:56.960 point of view, saying that that's a that's a bad 0:01:57.000 --> 0:02:00.600 thing overall terms, better to be hard with the housing market. 0:02:01.120 --> 0:02:03.920 It's kind of a kind of standoff. So on the 0:02:04.000 --> 0:02:06.480 one hand, like if you told I think everyone in 0:02:06.480 --> 0:02:09.360 this room the interest rates would go from one percent 0:02:09.400 --> 0:02:12.200 to over five percent and eighteen months this time last year, 0:02:12.240 --> 0:02:14.320 you would think a probably would be in a big 0:02:14.320 --> 0:02:17.400 recession and b house prices would have created and that 0:02:17.639 --> 0:02:20.840 hasn't happened. Like, house prices are down about four three 0:02:20.960 --> 0:02:23.840 four percent from the peak in August, more like twelve 0:02:23.880 --> 0:02:26.560 percent if you'd take inflation into account. But you know, 0:02:26.600 --> 0:02:29.680 they haven't crashed. The only thing that has kind of 0:02:29.720 --> 0:02:32.480 crashed it is transactions or so sellers don't want to 0:02:32.480 --> 0:02:34.840 pay and buyers don't want to sell out the prices 0:02:34.880 --> 0:02:37.959 that sellers can afford now, and that's basically because obviously 0:02:38.000 --> 0:02:41.120 mortgage courts have gone up, so sellers just simply can't 0:02:41.200 --> 0:02:44.040 raise as much money to buy houses. And really what 0:02:44.120 --> 0:02:50.240 happens next kind depends on if the labor market stays firm, 0:02:50.520 --> 0:02:53.600 and obviously wages were very strong today's we're recording this, 0:02:54.320 --> 0:02:57.560 then that means there probably won't be any forced sellers. 0:02:57.919 --> 0:03:00.160 But the longer this goes on for you know, or 0:03:00.160 --> 0:03:02.680 the longer you have to expect, well, something's got to give. 0:03:03.400 --> 0:03:05.760 And presuming the interest rates stay at least where they 0:03:05.800 --> 0:03:08.440 are for a long period of time, which they is 0:03:08.560 --> 0:03:11.320 very hard to see how they wouldn't. The thing that's 0:03:11.320 --> 0:03:13.960 got to give is buyers to say, well, okay, maybe 0:03:14.000 --> 0:03:17.240 we have to knock a bit off prices now because 0:03:17.919 --> 0:03:20.320 otherwise we're not going to be able to move. So 0:03:20.560 --> 0:03:22.519 that's kind of how we'd see it unfolding. 0:03:23.440 --> 0:03:26.320 But in terms of house prices and you know house 0:03:26.360 --> 0:03:29.239 price dynamics, I guess in support of higher prices or 0:03:29.240 --> 0:03:32.040 certainly not a cratering, there's also this funny supply and 0:03:32.080 --> 0:03:34.840 demand than in the UK. You know, we just don't 0:03:34.880 --> 0:03:38.760 have enough supply out there, and you're right, if wage 0:03:38.800 --> 0:03:41.440 prices go up, then you feel comfortable that you can, 0:03:41.720 --> 0:03:43.119 you know, maybe spend a little bit more. 0:03:43.240 --> 0:03:44.680 Yeah, I mean, well this is the other This is 0:03:44.720 --> 0:03:47.000 the kind of the things important prices as well, as 0:03:47.000 --> 0:03:50.840 long as jobs stay firm. Then some early London particularly 0:03:50.920 --> 0:03:54.960 and obviously I think probably London looms large over the 0:03:55.000 --> 0:03:58.160 general perception. But if it's a choice to be renting 0:03:58.720 --> 0:04:02.640 for a ridiculous mind payment, then most people are going 0:04:02.680 --> 0:04:04.440 to sit down and say, well, how can I turn 0:04:04.480 --> 0:04:08.200 my ridiculous rental payment into a ridiculous mortgage payment? And 0:04:08.280 --> 0:04:10.240 at least then I get the sense that I'm actually 0:04:10.280 --> 0:04:12.560 going to own a place at some point, and that 0:04:12.600 --> 0:04:15.840 perception is not necessarily always. The case is kind of complicated, 0:04:15.880 --> 0:04:18.800 and you need to think about your personal circumstances. But 0:04:18.839 --> 0:04:21.119 I can see that there's a pressure there because people 0:04:21.120 --> 0:04:23.520 fael caught between a rock and a hard place. I mean, 0:04:23.560 --> 0:04:27.800 physical supplying demand questions are really interesting. One. My view 0:04:27.880 --> 0:04:30.320 tends to be that interest rates are the main factor 0:04:30.440 --> 0:04:34.839 driving property prices simply because it's basically it's kind of 0:04:34.880 --> 0:04:37.360 like a bond. You know, obviously it's meant to yield 0:04:37.400 --> 0:04:40.440 a certain amount, and when interest rates go up, you 0:04:40.480 --> 0:04:42.760 need it to yield more. There for the capital values 0:04:42.760 --> 0:04:45.839 should come down. But obviously in certain places that simply 0:04:45.880 --> 0:04:48.719 aren't enough houses, because you know, everybody wants to live, 0:04:49.240 --> 0:04:53.719 you know, everybody likes leaving its own one, you know exactly. 0:04:53.920 --> 0:04:55.760 And you say rent prices are creat I mean they've 0:04:55.760 --> 0:04:58.960 gone up some thirty percent right into place in central London. 0:04:59.040 --> 0:05:00.920 Yeah, in London. I mean, the one thing I pointed 0:05:00.920 --> 0:05:04.159 with London is the prices did also kind of collapse 0:05:04.320 --> 0:05:08.360 and during the pandemic. So although you know, the last 0:05:08.360 --> 0:05:10.760 two years have been terrible for renters. Twenty twenty and 0:05:10.760 --> 0:05:13.159 twenty twenty one were great. I mean, I knew quite 0:05:13.200 --> 0:05:16.560 a few people from my own experience who ended up, 0:05:16.640 --> 0:05:18.599 you know, either moving a much nicer property for the 0:05:18.600 --> 0:05:20.920 same price, or you know, getting a much better deal 0:05:20.920 --> 0:05:24.159 on their rent. Because during the pandemic the city emptied out. 0:05:24.520 --> 0:05:27.520 So one reason's bounced back so much and so aggressively 0:05:27.720 --> 0:05:31.240 is because of that. But also landlords are selling up. 0:05:31.880 --> 0:05:33.920 So you have this as a mortgage, it is because 0:05:33.920 --> 0:05:34.600 mortgages are. 0:05:34.800 --> 0:05:37.320 Yeah, because the thing the landlord mortgages is that if 0:05:37.320 --> 0:05:39.760 you've got a mortgage as a landlord, it's an interest 0:05:39.839 --> 0:05:43.279 only loan, and so as interest rates go up, your 0:05:43.560 --> 0:05:46.280 mortgage kind of goes up at the same pace as them. 0:05:46.360 --> 0:05:48.200 But as if it's a repayment loan, you don't go 0:05:48.320 --> 0:05:50.320 up by as much. So like you know, if you 0:05:50.360 --> 0:05:53.000 don't if you had a by to let mortgage at 0:05:53.040 --> 0:05:56.520 two percent and it's now six percent, your monthly payment 0:05:56.560 --> 0:05:59.440 has trebled in that time. So a lot of landlords 0:05:59.480 --> 0:06:02.040 are finding that their cash flow negative basically by the 0:06:02.120 --> 0:06:04.520 end of the month, and that's being reflected and actually 0:06:04.560 --> 0:06:08.040 the repossession figures and also and the sales figure is 0:06:08.080 --> 0:06:10.640 one of our colleagues, Damien, just wrote a piece about 0:06:11.680 --> 0:06:14.720 landlords selling up at a much more faster rate than 0:06:14.760 --> 0:06:18.520 people expected. The problem is it's not first time buyers 0:06:18.560 --> 0:06:21.560 who end up getting those properties necessarily a lot of time, 0:06:21.600 --> 0:06:25.359 whither be either cash rich landlords or it will be 0:06:26.480 --> 0:06:28.800 possibly first time buyers. But then you're talking about these 0:06:28.800 --> 0:06:32.760 properties might have been multiple occupancy ones, so you've still 0:06:32.760 --> 0:06:35.560 get that kind of bottleneck there, which means that the 0:06:35.720 --> 0:06:39.800 supplier rental property falls and you still have a large 0:06:39.880 --> 0:06:42.320 number of renters who want to rent. In fact, the 0:06:42.400 --> 0:06:44.479 number of renters who want to rent goes up because 0:06:44.720 --> 0:06:47.320 people think, well, I'm going to hold off buy and 0:06:47.400 --> 0:06:51.320 in case prices fault. So that is kind of Horribleally, 0:06:51.320 --> 0:06:52.680 if you're in that situation, can. 0:06:52.600 --> 0:06:55.440 I ask you a question about the landlords and renting, 0:06:55.520 --> 0:06:59.320 because obviously they're the new EPC standards coming through, And 0:06:59.360 --> 0:07:02.320 at what point you think maybe the landlords, when they're 0:07:02.360 --> 0:07:05.279 making the decision on that six percent is looking pretty tough, 0:07:05.600 --> 0:07:07.120 do they sort of think, well, I've actually got to 0:07:07.120 --> 0:07:10.200 put quite a lot more capital into my property as well. 0:07:10.040 --> 0:07:12.360 For us, your mordals, what is EBC? 0:07:12.480 --> 0:07:12.600 Oh? 0:07:12.640 --> 0:07:15.760 Sorry, that's the environmental controls that the government is putting on. 0:07:15.800 --> 0:07:18.040 The first phase of that came in in April, and 0:07:18.080 --> 0:07:19.680 it phases up so that you've got to be an 0:07:19.720 --> 0:07:22.360 A or a B, which is quite environmentally friendly by 0:07:22.360 --> 0:07:25.440 twenty thirty. So it's only going to escalate. I mean, 0:07:25.440 --> 0:07:27.960 it's affecting commercial real estate. But I just wondered if 0:07:27.960 --> 0:07:30.600 it was also a trigger potentially for land laws moving 0:07:30.640 --> 0:07:32.520 out of the market because they're a bit scared. Some 0:07:32.600 --> 0:07:35.000 of those buildings that are rented out really do need 0:07:35.040 --> 0:07:36.240 some upgrades, don't they. 0:07:36.360 --> 0:07:38.760 I definitely know, and you're absolutely right. In fact, it 0:07:38.840 --> 0:07:42.320 was interesting because Damien's piece that I mentioned earlier, they 0:07:42.360 --> 0:07:44.800 kind of going back to the HMRC starts. They found 0:07:44.840 --> 0:07:47.200 that the by to sale off if you like, actually 0:07:47.240 --> 0:07:51.000 started and can I early twenty twenty one, so before 0:07:51.120 --> 0:07:53.920 the interest rates became such a big issue, and I 0:07:53.920 --> 0:07:56.320 think at least part of that is driven by the 0:07:56.440 --> 0:07:59.680 environmental standards because the art haven't the upgrade and those 0:07:59.720 --> 0:08:03.800 also obviously there's a general I feel like regulatory hostility 0:08:03.880 --> 0:08:06.840 to the small landlord. Now, I mean that started wee 0:08:06.920 --> 0:08:11.760 bike with George Osbond's tax changes, so we all have 0:08:11.880 --> 0:08:14.040 to be absolutely honest, my sympathies for landlords are not 0:08:14.080 --> 0:08:15.880 high because there's an awful lot of bad actors in 0:08:15.920 --> 0:08:19.880 the sector. It is not absolutely not the tame it 0:08:19.920 --> 0:08:22.920 can be in howmateur landlord, what we think they're getting then, 0:08:23.240 --> 0:08:25.960 and no, I think you're absolutely through. The EPC's definitely 0:08:25.960 --> 0:08:26.880 an issue as well. 0:08:27.400 --> 0:08:29.520 But in commercial real estate, I guess the way that 0:08:29.600 --> 0:08:32.840 the deals are structured, there's so much more leverage, they'll 0:08:32.880 --> 0:08:36.559 be much more sensitive to interest rate increases. 0:08:37.120 --> 0:08:40.160 Yeah, there is a broad span of that, and the 0:08:40.200 --> 0:08:43.320 listed arena the shareholders have been on and on about 0:08:43.520 --> 0:08:46.680 being highly leveraged for the UK roats for some time now. 0:08:46.920 --> 0:08:49.120 So even though you would be allowed to have normally 0:08:49.160 --> 0:08:52.200 on a loan coven into sixty percent loan to the 0:08:52.240 --> 0:08:55.160 value of the property. A lot of the main routes 0:08:55.200 --> 0:08:58.080 that were down in the twenties ahead of going into 0:08:58.080 --> 0:08:59.960 this period and now they're creeping up to the thirties 0:09:00.120 --> 0:09:02.840 isn't moving into the forties. And it's the commercial real 0:09:02.960 --> 0:09:05.920 estate companies that had sort of forty percent or more 0:09:05.960 --> 0:09:08.920 going into this that are the ones where the stress 0:09:08.960 --> 0:09:11.920 is really showing. In the private markets, quite often they 0:09:11.920 --> 0:09:14.600 would go to that covenant. So I think that there 0:09:14.679 --> 0:09:16.559 is going to be signs of distress, and certainly the 0:09:16.640 --> 0:09:18.880 routes are starting to say that, you know, there's some 0:09:18.920 --> 0:09:22.319 of that coming out. But I think Jack, you'll probably 0:09:22.360 --> 0:09:25.679 agree with me. On the operational side. You know, the 0:09:25.800 --> 0:09:29.480 properties which have got the good EPC ratings, that are 0:09:29.559 --> 0:09:33.480 environmentally friendly, that are brand spanking new, they're filling up. 0:09:33.840 --> 0:09:36.600 But seventy percent of what's vacant at the moment across 0:09:36.720 --> 0:09:40.080 Central London, for example, where vacancy's eight point five percent 0:09:40.120 --> 0:09:42.280 I think, and three point eight in the West End 0:09:42.320 --> 0:09:45.840 and about twelve percent in the city. I think there's 0:09:45.880 --> 0:09:49.640 the numbers you know that's all concentrated in the second 0:09:49.679 --> 0:09:52.040 hand property that hasn't been upgrade and it's looking a 0:09:52.040 --> 0:09:53.840 bit down at heel. 0:09:54.240 --> 0:09:57.360 And second hand property basically, Jack just means where you've 0:09:57.360 --> 0:09:59.960 had a lease and you're what the second tenants. 0:10:00.080 --> 0:10:00.760 It could be. 0:10:02.720 --> 0:10:05.840 Anything that isn't the sort of the best newest space, 0:10:05.920 --> 0:10:09.120 So you know, probably and that definition of what is 0:10:09.160 --> 0:10:11.559 the best space is getting narrower and narrow and narrower. 0:10:11.600 --> 0:10:15.000 So what location so very centralized locations. So if you 0:10:15.000 --> 0:10:16.760 look at some of the big companies that have moved 0:10:16.800 --> 0:10:20.840 recently HSBC for example, they've gone from Canary Wharf. They've 0:10:20.880 --> 0:10:23.000 chosen to come into the city, so you know, more 0:10:23.040 --> 0:10:25.720 central location. Similar for Clifford Chance, huge law firm who 0:10:25.720 --> 0:10:28.160 are Wharf, they've come into the city as well. You 0:10:28.200 --> 0:10:30.760 see a bunch of companies coming from sort of West London. 0:10:30.840 --> 0:10:32.160 You know, if you have a drive out of London 0:10:32.160 --> 0:10:33.559 on the M four, you see all those great big 0:10:33.600 --> 0:10:36.080 office buildings. A lot of the companies that use that 0:10:36.120 --> 0:10:38.079 type of space they've started to move in as well. 0:10:38.559 --> 0:10:41.040 And that's it's I think there's a number of different 0:10:41.040 --> 0:10:43.720 factors here on the sort of occupational side. I guess 0:10:43.840 --> 0:10:47.080 one of the realizations that companies have had after the 0:10:47.080 --> 0:10:51.880 pandemic and this whole experiment with more flexible working is well. 0:10:51.720 --> 0:10:54.240 Why don't if people are going to be in the building. 0:10:53.960 --> 0:10:56.320 Less, Maybe we need less space, but therefore we can 0:10:56.360 --> 0:10:58.920 afford to spend more on better space that will attract 0:10:58.960 --> 0:11:02.080 people in so more and amenities, you know, in easier 0:11:02.080 --> 0:11:04.760 to get to location, trying to incentivize people to come 0:11:04.800 --> 0:11:07.880 in and overall your cost probably doesn't change that much. 0:11:07.960 --> 0:11:10.440 I mean, it's also a very long term trend that's 0:11:10.440 --> 0:11:13.560 always worth bearing in mind, is forty or fifty years ago, 0:11:13.840 --> 0:11:16.400 rent would have been a lot of business's highest cost. 0:11:16.840 --> 0:11:19.880 Now it's tiny relative to labor costs. I mean, I 0:11:19.880 --> 0:11:22.840 think in the city it used to be something like 0:11:22.840 --> 0:11:24.960 forty or fifty percent that the average business costs would 0:11:25.000 --> 0:11:28.160 be on rent. Now it's more like five percent. So actually, 0:11:28.240 --> 0:11:31.160 in terms of sort of staff recruitment and retention, spending 0:11:31.200 --> 0:11:32.719 a bit more to get a better office can be 0:11:32.800 --> 0:11:35.160 quite a good investment for businesses, you know, because if 0:11:35.160 --> 0:11:37.959 it means you lose fewer staff ultimately that's that's pretty 0:11:37.960 --> 0:11:38.840 good for your bottom line. 0:11:38.840 --> 0:11:40.920 But Jack, that's a crazy number. So from forty percent 0:11:40.960 --> 0:11:43.520 cost it's gone down to five percent? Is this because 0:11:43.600 --> 0:11:46.199 everything else has become more expensive? H or rents in 0:11:46.240 --> 0:11:47.880 London also have come down. 0:11:48.240 --> 0:11:50.920 In real terms, they've come down, I mean, rents are 0:11:51.000 --> 0:11:53.199 very cyclical. To come back to something talking about earlier, 0:11:53.160 --> 0:11:56.000 it's it's been a really interesting year covering commercial estake 0:11:56.000 --> 0:11:58.040 because this time last year you could start to see, 0:11:58.120 --> 0:12:01.199 you know, the writing was potentially on all rates starting 0:12:01.200 --> 0:12:03.440 to ratch it up pretty quickly, And I remember hitting 0:12:03.440 --> 0:12:06.480 the phones calling various people who've seen plenty of cycles 0:12:06.520 --> 0:12:10.520 and speaking to senior private equity real estate investor, and 0:12:10.559 --> 0:12:12.920 he was like, look, you know, every real estate crash, 0:12:12.920 --> 0:12:15.960 every commercial real estate crash, is typically defined by a 0:12:16.000 --> 0:12:18.960 surfit of cranes or a surfit of credit, and we 0:12:19.000 --> 0:12:21.520 haven't seen that this time, so I'm not too concerned. 0:12:22.280 --> 0:12:25.560 But we've also never seen a modertary policy shift as 0:12:25.640 --> 0:12:28.360 rapid as we have this time. And so actually in 0:12:28.400 --> 0:12:31.520 the UK, the repricing, the sort of correction that we 0:12:31.600 --> 0:12:34.640 had particularly in Q four last year, but that did 0:12:34.679 --> 0:12:37.400 continue into Q one this year is the fastest we've 0:12:37.400 --> 0:12:40.959 ever seen. It's more vitiginous than the GFC, not as deep, 0:12:41.040 --> 0:12:43.640 but the rate of decline has been more quick. But 0:12:43.679 --> 0:12:46.360 at the same time, as soon mentioned, the operational kind 0:12:46.360 --> 0:12:49.280 of fundamentals are actually pretty good. There isn't that much 0:12:50.040 --> 0:12:53.240 excess supply. That hasn't been that much building. You Brexit 0:12:53.280 --> 0:12:56.360 put people off, developing been a whole, and then the 0:12:56.400 --> 0:12:58.439 pandemic as well, so there isn't loads and loads of 0:12:58.520 --> 0:13:00.839 kind of excess new space coming to my ow and 0:13:00.920 --> 0:13:03.640 the UK. On the public side, the UK reads have 0:13:03.720 --> 0:13:05.800 kind of learned their lessons in the GFC. Most of 0:13:05.840 --> 0:13:09.600 them came into this cycle with relatively low leverage. I mean, 0:13:09.640 --> 0:13:11.840 it's quite different when you compare it to the continental 0:13:12.120 --> 0:13:14.000 public landlords. A lot of them have come into this 0:13:14.040 --> 0:13:17.280 with you know, forty or fifty percent leverage, and that's 0:13:17.320 --> 0:13:19.280 going to get much uglier, I think. But I think 0:13:19.320 --> 0:13:24.079 the uk reaates broadly, certainly on the office side of 0:13:24.440 --> 0:13:27.960 been quite well behaved when it comes to leverage actually though. 0:13:27.960 --> 0:13:30.280 But I've just been looking at some of the stats 0:13:30.520 --> 0:13:33.520 for Central London that Derwert London, one of the big 0:13:33.520 --> 0:13:36.400 London uts, put out in their presentation for their results 0:13:36.480 --> 0:13:39.160 last week, and it is quite scary if you look 0:13:39.160 --> 0:13:41.080 at the take up and you look at the new starts. 0:13:41.920 --> 0:13:44.760 New starts on site in the second quarter of this 0:13:44.840 --> 0:13:48.079 year were really strong, and we've got a supply situation 0:13:48.679 --> 0:13:52.480 where there is forty five percent more space than the 0:13:52.640 --> 0:13:55.239 normal average being. 0:13:55.080 --> 0:13:57.360 Completed this year to what Central London. 0:13:57.400 --> 0:14:00.679 This is Central London offices for percent more and a 0:14:00.679 --> 0:14:03.439 lot of that has not yet been let Is that. 0:14:03.400 --> 0:14:06.240 Why I'm seeing like twenty five cranes out the office window. 0:14:06.400 --> 0:14:08.959 It could be reach many questions, all sorts of things, 0:14:09.000 --> 0:14:11.720 and I think it's probably smaller properties, but there's a 0:14:11.720 --> 0:14:13.960 lot of land also obviously put some money into that. 0:14:14.000 --> 0:14:16.679 Now the new starts this year, you can see, Okay, 0:14:16.720 --> 0:14:19.040 well that will be delivered in twenty twenty five. If 0:14:19.040 --> 0:14:21.800 I've got the funding for it, then I'm going to 0:14:21.800 --> 0:14:25.160 be delivering into perhaps a better market. That's what they're thinking. 0:14:25.200 --> 0:14:26.760 I'm not sure I entirely agree with them, because I 0:14:26.800 --> 0:14:29.720 think this might actually go along. But in terms of 0:14:29.760 --> 0:14:31.480 take up in the first half of the year it's 0:14:31.520 --> 0:14:34.680 thirty five percent below for normal level, So you've got 0:14:35.240 --> 0:14:40.320 disappearing on both sides. Rent in the city stayed flat 0:14:41.400 --> 0:14:44.800 about seventy pounds a square foot a year, and in 0:14:44.840 --> 0:14:47.880 the West End it's been creeping up. So you've got 0:14:47.920 --> 0:14:51.560 all these different things going on and it's really hard 0:14:51.560 --> 0:14:52.560 to see how it's going to go. 0:14:52.680 --> 0:14:54.640 Also, on those sort of capital market side, the fact 0:14:54.680 --> 0:14:57.040 that the UK and London in particular is corrected so 0:14:57.160 --> 0:14:59.320 quickly is a good thing because what you're seeing in 0:14:59.560 --> 0:15:02.720 content Europe, where prices haven't adjusted to interest rates and 0:15:02.800 --> 0:15:05.640 kind of everyone knows where they're going but nobody's admitting 0:15:05.720 --> 0:15:08.440 it yet, means you've just got this total stand off 0:15:08.560 --> 0:15:11.640 between buyers and sellers. Where in the UK, because prices 0:15:11.680 --> 0:15:14.160 have corrected and that was sort of probably aided and 0:15:14.160 --> 0:15:16.400 avetted by what happened last autumn with the mini budget 0:15:16.400 --> 0:15:18.040 and all the rest of it. There is a sort 0:15:18.080 --> 0:15:19.880 of pool of buyers who are sat on the sidelines, 0:15:19.880 --> 0:15:22.040 and we've had a few false storms this year where 0:15:22.040 --> 0:15:24.520 everyone thinks that rates are peaked, you know, and then 0:15:24.560 --> 0:15:27.240 you get a hot CPI print and suddenly expectations move 0:15:27.280 --> 0:15:30.280 out a bit. But as soon as there is a 0:15:30.280 --> 0:15:33.400 bit more certainty, a bit more confidence that you know, 0:15:33.440 --> 0:15:35.600 THEO has gone as far as it's going to go, 0:15:36.240 --> 0:15:38.920 I think you'll see quite a few buyers jump back in. 0:15:39.600 --> 0:15:43.480 And to your point around the increase in construction start 0:15:44.120 --> 0:15:46.480 to Looyte put out surveyed twice a year on called 0:15:46.520 --> 0:15:50.800 the Crane survey, you know, literally you know, measuring it up, Yeah, exactly. 0:15:51.040 --> 0:15:53.080 I count demise that coming into the office every day. 0:15:53.200 --> 0:15:55.120 And the striking thing from looking at the most recent 0:15:55.160 --> 0:15:57.440 one of those is that it's massively all those new 0:15:57.440 --> 0:16:00.320 starts are massively driven by refurbishments. And I think a 0:16:00.360 --> 0:16:02.120 lot of that is the PC thing that we were 0:16:02.120 --> 0:16:04.160 talking about earlier. So same for offices, You're not going 0:16:04.200 --> 0:16:06.160 to be able to rent them out at all unless 0:16:06.160 --> 0:16:09.560 they're this ALB by twenty thirty. Now whether the government 0:16:09.560 --> 0:16:12.040 sticks with that is another question. But so there's loads 0:16:12.080 --> 0:16:14.400 of landlords who are sitting on properties that you know, 0:16:14.440 --> 0:16:15.920 with leases that are coming to the end of their life, 0:16:16.000 --> 0:16:17.360 have just come to the end of life that are 0:16:17.360 --> 0:16:19.680 cory rated CD or an E, and so they're like, well, 0:16:19.800 --> 0:16:21.360 we're not going to be able to rent this unless 0:16:21.400 --> 0:16:22.960 we improve it. 0:16:23.240 --> 0:16:26.880 So what happens to these massive buildings and projects. I 0:16:26.880 --> 0:16:29.440 know HSBC got a lot of people talking because first, 0:16:29.640 --> 0:16:31.200 you know, it was seen as kind of the great 0:16:31.240 --> 0:16:34.400 hybrid project of people coming into work, so as Jack said, 0:16:34.400 --> 0:16:37.840 you need less offare space. But also it's a huge tower, 0:16:38.040 --> 0:16:40.680 Like what happens to the HSBC tower? Who's going to 0:16:40.680 --> 0:16:41.120 rent that? 0:16:41.480 --> 0:16:45.080 Those are really difficult questions. The way that it's structured 0:16:45.600 --> 0:16:47.680 for an office and the size of the floor plates 0:16:48.200 --> 0:16:51.800 means that it's very difficult to convert that into residential 0:16:52.080 --> 0:16:53.760 that you know, you're used to having all the wires 0:16:53.880 --> 0:16:56.520 under the you know, in between the floors. And I'm 0:16:56.520 --> 0:16:59.040 not an architect, I don't know all the construction details, 0:16:59.040 --> 0:17:01.840 but my understanding that you know, it's very difficult. So 0:17:01.880 --> 0:17:04.480 it's almost more economical to put the whole thing down 0:17:04.520 --> 0:17:06.040 and build something else. But on top of that, you've 0:17:06.040 --> 0:17:08.800 got to get the planning for it too, so it 0:17:08.800 --> 0:17:10.439 will take quite a long time. So you've got a 0:17:10.480 --> 0:17:13.520 long period where your money isn't going to be generating 0:17:13.680 --> 0:17:16.560 any cash. So you know, there are quite a big 0:17:16.640 --> 0:17:20.080 constraints towards that. And I'm a bit worried about Canary Wharf. 0:17:20.240 --> 0:17:22.600 Yeah, I think that that's just a very particular case, 0:17:22.640 --> 0:17:25.000 or in fact not just Warf but those types of 0:17:25.119 --> 0:17:28.480 very deh nineties early two thousand sort of banking towers 0:17:28.760 --> 0:17:32.120 are kind of white elephants, I think. On the conversion thing, 0:17:32.480 --> 0:17:35.480 if you think about big deep trading floor, you just 0:17:35.560 --> 0:17:37.239 can't really convert it in the flat because everybody needs 0:17:37.240 --> 0:17:39.159 a window unless you had a whole load of like 0:17:39.280 --> 0:17:41.080 very very narrow, long flats by the back. 0:17:40.920 --> 0:17:41.760 Of the foot of the children. 0:17:41.880 --> 0:17:44.720 Yeah, really dark, So that doesn't really work. I mean, 0:17:45.280 --> 0:17:48.400 in Canary Wharf Group's case, they're very well capitalized. It's 0:17:48.400 --> 0:17:50.760 owned by Brookfield and Qatar, They've got a lot of 0:17:50.800 --> 0:17:53.840 real estate acupant. Yeah, they will, and they've seen this 0:17:53.920 --> 0:17:56.440 coming for a long time, so they are gradually repositioning 0:17:56.520 --> 0:17:56.840 that state. 0:17:56.880 --> 0:17:58.159 I think they'll they'll be okay. 0:17:58.600 --> 0:18:01.560 But you've got some indivial dual you know, overseas investors 0:18:01.560 --> 0:18:03.159 who came in and bought what they thought was a 0:18:03.160 --> 0:18:05.640 trophy asset that maybe had ten years on the lease 0:18:05.720 --> 0:18:08.000 to Moody's or S and P or whoever it was, 0:18:08.400 --> 0:18:10.000 and now it's got five years on the lease and 0:18:10.000 --> 0:18:12.359 they don't necessarily have the skills to reposition that. And 0:18:12.400 --> 0:18:14.840 that's where you're seeing starting to see those pockets of distress. Ye, 0:18:14.880 --> 0:18:16.639 there's a couple of big buildings in Canary Wharf that 0:18:16.680 --> 0:18:19.119 are owned were owned by a Chinese investor, that are 0:18:19.119 --> 0:18:21.760 now in the hands of receivers. And I think it'll 0:18:21.800 --> 0:18:25.760 be those investors who bought just for the income who 0:18:25.800 --> 0:18:28.320 don't really have the skill set to reposition those where 0:18:28.359 --> 0:18:29.280 that'll be more difficult. 0:18:29.600 --> 0:18:29.800 Think. 0:18:29.800 --> 0:18:32.680 I think the solutions, you know, there'll be some life 0:18:32.720 --> 0:18:35.720 science space. That's one area where the UK is doing well. 0:18:35.720 --> 0:18:37.760 There's a big shortage of lab space. Again, there's a 0:18:37.800 --> 0:18:40.280