City focus series:
Contents _ 04 Moving around the city _ 05 Sales and lettings markets _ 06 The impact of office-to-residential permitted development rights _ 07 Moving on up: finding value in a tower 3 ABOUT COUNTRYWIDE PLC: Countrywide plc, the UK s largest integrated property services Group, including the largest estate agency and lettings network, operates more than 1,300 associated branches across the UK. Countrywide plc s network of expertise helps more people move than any other business in the UK and is a leading provider of estate agency, lettings, mortgage services, land and new homes, auctions, surveying, conveyancing, corporate property management services and commercial property. Countrywide plc s award-winning service has earned the business over 180 high-profile industry awards in the last six years, with customers voting Countrywide Best Estate and Lettings Agency at the 2014 ESTAS awards. Our Land & New Homes team was named the UK s Best New Homes Agent for two consecutive years at the Estate Agency of the Year Awards 2012 and 2013 and Countrywide Surveying Services has for the third consecutive year won the Best Anti-Fraud Services Award at the Mortgage Finance Gazette Awards 2015.
City focus series Moving around the city Sales market 1 2 23 Like many large cities, holds considerable draw, particularly to the young. Over half of the 18,000 people who move into each year are aged under 22. Moving in 22 3 28 40% Students Moving out 10% Aged 65+ 50% Working age 27 2014 marked the beginning of a pickup in activity among buyers and sellers in the city centre. In October there were 40% more registered buyers alongside a 9% increase in the number of properties on the market in comparison to the same time last year. Until 2014, many would-be sellers had stayed out of the market with negative equity preventing many of these households from selling. Five years of low activity has meant that 2014 is the first time that many households have been able to move, a combination of better access to mortgage finance and fewer households finding themselves in negative equity. With many homeowners unable to move, it was housebuilders who drove the market during the downturn selling off the tail end of their development pipelines. With the market showing signs of recovery over the last 12 months, a number of new developments are back under construction, but many are still 6-12 months away from reaching the market. The increasing availability of mortgage products, particularly those available outside the Help to Buy scheme, has driven a recovery in the second hand market. Cash sales however, were and remain, an important part of the city centre market. In 2014, half of all sales through Countrywide were to cash buyers. These buyers fall into two groups: downsizers and investors. The 200,000+ market is dominated by downsizers. These are households selling a mortgage free family home in the suburbs, to fund the purchase of a smaller and more manageable property while releasing some equity. Investors account for the majority of cash purchases under 200,000. These tend to be mid specification new build blocks in students markets. Purchases are predominantly yield driven, with investors prioritising returns over capital growth prospects. Into rental sector Into homeownership 74% Into rental sector 35% 26% Into homeownership 65% Lettings market 4 Where people moving into come from: 1. Sefton 2. London 4/5 3. Cheshire East 4. Bolton 5. Birmingham The majority of those moving out of choose not to move far, an average of just two and a half miles or a ten-minute drive, one of the shortest distances in the country. Most of these households continue to work in, with half of the 200,000 people working in living outside the city itself. Wirral Formby Southport St.Helens Areas where more people work in than work locally 5 s reach Where people moving out of go to: 1.Halton 2.Knowsley 3. 4.Wirral 5.Sefton Half of people working in live outside the city. Here s where they all come from. Sefton Knowsley Wirral St.Helens Halton Chesire West West Lancs Manchester Wigan 11.4% 9.3% 8.6% 2.4% 2.1% 1.8% 1.4% 1.2% 0.7% 0.3% Source: Countrywide plc 2014 The lettings market in the city centre is characterised by high levels of tenant mobility and turnover. This level of churn means that landlords who can offer property which is ready to move into (fully furnished with utility contracts set up) are able to achieve a premium. 90% of properties in the city centre are offered furnished, a figure which has grown in recent years with the construction of a number of built-to-rent schemes. Newbuild sales as a proportion of total transactions A B Transactions fall sharply in the second hand market while developers sell off the tail end of pipelines. Whole of market recovery sees the second hand stock account for a larger proportion of sales. 70% 65% 60% 55% 50% 45% 40% 35% 30% These developments are attractive to would-be tenants, offering packages such as inclusive utilities, more flexible tenancy lengths and free cleaning.the fastest growing segment of the city centre market has been the student market which now accounts for 40% of lets. Growth has come from both an increasing number of students and the development of a critical mass of purpose built student accommodation in the city centre. As a result, areas popular with students outside the city centre such as Wavertree, have seen some properties converted back into family homes. The student market is highly seasonal, with 85% of lets agreed between April and September with 9 or 12 month contracts the norm. For the most desirable four or five blocks in prime areas, it is not uncommon for 12 months rent to be paid in advance to secure the property. 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 A B
City focus series 18 months later: the impact of office-to-residential permitted development rights Moving on up In May 2013 new permitted development rights were introduced by Central Government which allowed commercial office space to be converted into residential accommodation without the need for planning permission. The scheme had the intention of allowing office space which was surplus to requirements to be converted into residential accommodation quickly. City Council applied for swathes of the city centre to be excluded from these new permitted development rights, but was turned down. 18 months after the introduction of office-to-residential permitted development rights, we take a look at the impact these new rules are having on. While planning permission itself isn t required, the time taken to design and finance a scheme and obtain permitted development consent, means that it has only been over the last quarter of 2013 and 2014 that schemes have started to come forward in any great number. Today a total of 30 schemes, or 12% of residential units in the city centre development pipeline, are offices with permission to be converted into residential accommodation. The relatively stringent criteria attached to the granting of permitted development rights meant that only limited changes are permitted to the fabric of the building. The need to make changes to the façade, internal layouts and the provision of amenity space can make schemes unviable or require a potential development to obtain full planning permission. Those that have come forward have fallen into one of two groups. The first and smaller group, representing around a quarter of office-to-residential conversions, are destined for the top end of the private sale market. These are almost exclusively former houses on the southern fringe of the city centre. The Hope Street and Canning Quarters are home to the majority of these schemes. These areas were built for s wealthy merchants in the early 1880s, but fell out of favour during the 1970s. A significant number of the larger unlisted Georgian and Victorian houses were utilised as office space by small businesses. Selling at 250ft² and above means sufficient margin exists for the costs of re-development to be covered making the scheme viable. The second, and largest group of units in the office-to-residential pipeline, comes from purpose built, poor quality office space. These schemes perhaps represent what the Communities Secretary had in mind when bringing forward permitted development rights. City Council s fears of losing substantial amounts of office accommodation haven t been realised. While a number of schemes have come forward, viability has proved a stumbling block. Converting office accommodation achieving over 7ft² in rent annually, the vast majority of the city market, hasn t proved viable. The cost of conversion, alongside the short term private rented sector returns, have proved prohibitive. While three quarters of the office-to-residential schemes in the pipeline under the new rules look set to end up in the student sector, question marks remain over whether the majority are deliverable or will be realised any time soon. Many Local Authorities felt that the introduction of permitted development rights allowing office space to be converted into residential accommodation without the need for planning permission would see the amount of available office space cut dramatically. In reality the number of viable schemes are limited as City Council has seen, with only a few suitable uses. With external alterations not permitted under the rules and only a degree of internal structural changes allowed, the suitability of office conversions for the homeownership market remains limited. While in theory the private rented sector, and the student market in particular, look to be the largest beneficiaries, large question marks remain over their viability. It gives a clear signal to owners, developers and local planning authorities that we want underused and outdated offices to be brought back to life. Eric Pickles May 2013 In 1911, the Liver Building was completed on s waterfront. At 295 feet it was the tallest building in and England s first skyscraper. The Liver Building held this honour for 54 years, before being topped by s famous Radio City tower. Since 2008, the tallest building in is the West Tower (40 floors) which stands at just over 459 feet. Over the last 20 years, new schemes have come in all shapes and sizes, and the diversity of product on offer for buyers has never been greater. Even within a single development, the location of a flat within a block can have a considerable impact on its value, size and design. The potential to achieve higher sale prices frequently leads developers to tailor their product to its position, even within a single block, resulting in sales to different types of buyer. The increasing size of flats higher up the building is a reflection of rising values. Further down the building, where /ft² values are lower, smaller flats allow more units to be accommodated. The fourth floor represents a dividing line. With the highest density housing schemes clustered in already built up areas, flats above the fourth floor tend to tower above the rooftops, enjoying views of the River Mersey and are able to command the largest premiums. Between the third and fourth floors, average /ft² values jump 15%, the largest increase anywhere within a scheme, larger than even the differential the penthouse and the flat on the floor below. For first time buyers, this value gaps affords the opportunity to buy into a scheme which otherwise may be unaffordable. For investors, a tenant on the fifth floor is unlikely to pay 15% more rent than someone on the floor below. With yields becoming compressed on higher floors, investors tend to target flats on lower levels. First time buyers, investors and owner occupiers all play a different role in ensuring that schemes get built. While investors are willing to purchase units off plan, often years prior to completion and provide crucial forward funding, owner occupiers are more willing to pay a premium for a product they themselves will live in. The most successful developers in have become apt at designing schemes which cater for all three, balancing affordability with viability in what has been a challenging downturn to ensure their scheme gets out of the ground. Finding value in a towerblock: /ft 2 in city centre Seventh floor Sixth floor Fifth floor Fourth floor Third floor Second floor First floor Ground floor 240ft 2 230ft 2 225ft 2 225ft 2 185ft 2 6/7
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