"Productivity is not a problem in the greater south-east, but it is a major issue in cities elsewhere in the country. In particular, Britain's major cities should be leading the national economy, but instead they are causing it to lag behind that of other countries. Unless we get these places to punch at their weight, the national economy will continue to be hamstrung." - Andrew Carter, Chief Executive, Centre for Cities.
This week’s quote pertains to the deep dive, as ever, as we get stuck into a number of reports including this one on just how the Midlands cities are doing when compared to those in the South East.
As the calendar advances through the Golden Quarter, our next Property Business Workshop is live and tickets are already selling. This is about structure, and exit - yours, and others. No exit plan? You go out one way or another. Things have changed, as well, with pensions being brought into the scope of your personal estate. What does this mean for SSAS - according to people that use them, but don’t sell them - an objective viewpoint. Book in on the next Property Business Workshop with myself and Rod Turner - Wednesday 22nd April - Central Manchester - www.tinyurl.com/pbwten
Trumponomics had an interesting week when the Supreme Court ruled that the Prez had exceeded his executive authority by using the International Emergency Economic Powers Act to impose the “Liberation Day” Tariffs. 6-3 was the vote - so 3 stayed loyal, and at least 2 didn’t do what they were supposed to do (too cynical?). He named the 3 traitors, of course, the conservative justices who voted against - “disloyal” and “barely invited” to the State of the Union Address. Standard Fare. The law is still (as it always has been) a matter of argument and opinion (and, indeed, loyalty, it seems).
Of course the team were prepped for this, and immediately announced a new 10% tariff based on the Trade Act of 1974, which allows for Tariffs up to 15% for a maximum of 150 days, after which congressional approval is needed to extend them.
Many of the other tariffs also remain in effect because they were done under other laws - Steel, aluminium, cars (all matters of national security apparently).
The stock markets have as much tariff fatigue as any of us, and kept calm and carried on. The argument is that this would lower volatility, although the announcement of another way of getting to the same goal doesn’t SEEM to imply less volatility (but the use of that act does keep a lid on the tariffs, of course, and also ensures a proper oversight process).
US growth figures also disappointed and were buried in the news, although the Secretary to the Treasury confirmed that the US will grow at least 3.5% in 2026 (the annualised rate of growth in Q4 was 1.4% down from the fantastic 4.4% annualised figure in Q3 2025).
Iran got a 10-day warning to agree to a new nuclear deal. Ish. With a significant military buildup in the Middle East happening in the background. The “Board of Peace” saw some plans leaked for a 5000-person military base in Gaza with an “International Stabilisation Force” present. FIFA got involved to help rebuild Gaza via sports investments, in what seems a relatively bizarre move. There was also a bit of a tizz over a reported $3bn spike in Mr Trump’s Net Worth since he’s returned to the White House - very different from 18 months ago when the likes of Forbes were still busy claiming that he probably wasn’t a billionaire. Two thirds of this seems to have come from World Liberty Financial, the family crypto venture which has had some massive investments including $500m from a member of the Emirati royal family shortly before some favourable tech and microchip deals were approved for the UAE. Looks relatively as flagrant as the Nancy Pelosi stock trading fund, and its famous outperformance of the market - but at a bigger scale. Mostly business as usual, really, for US politics? Likely outcome - nothing at all.
Back we go to the safety of the UK real-time property market. Chris Watkin’s analysis/roundup of week 6 of the UK Property Market. Chris “runs” Sunday to Sunday, so this was the week ending 8th February. One more time we managed even more listings than in 2025 for yet another week - just about - so far (207k on the market so far is 1% above 2025 and 10% ahead of 2024, and 22% ahead of the 2017-19 average). The glut of listings is persisting after “budget lag” - it certainly appears there’s as much enthusiasm to sell as there was in 2025. How long will it last, and how much is because of holding off particularly on houses above 500k between August and November as budget speculation was rife? We can’t keep referring back to pre-budget though, and you’d expect that effect to be dying off. What does seem to be highly unlikely to me is that this is some kind of seismic shift that will continue (selling more houses more often), because frictional costs as a percentage are as high as they’ve been at any point in time, most certainly for second home buyers/landlords but also for first time buyers since the stamp “reset” on 1st April 2025. So there’s some kind of “one-off” nature to all of this, which I can’t put past simply being landlord disposal (remember, this doesn’t mean those properties aren’t being bought by other landlords, and it doesn’t mean by definition that landlords aren’t creating or buying new stock either - but some sensible assumptions would mean that we are looking at fewer rentals going forward rather than more rentals - the question is just how big, or not, this trend is).
Gross sales are at 141k SSTC YTD, 13% higher than 2024. That tells you about the health of this market - the reason why pricing is sideways is because there is just so much supply, but transaction numbers still look very healthy indeed. Functional. Prices dropping in real terms (after inflation). Affordability improving. Don’t tell the Guardian (or any of the mainstream media) - there’s no ragebait here, after all. 22% ahead of the pre-covid “norms”.
Net sales are also 14% ahead of 2024, at 108k. 18% ahead of the 2017-19 market, and 31% ahead of 2023 which as we know was “limp lettuce” territory all year.
To start February there ended up being a 10-year+ record number of homes on the market (for a February, to be clear - we haven’t yet ascended or beaten the peaks set in 2025) - 663k thanks to this record Boxing day and solid January - 2025 Feb 1st saw 660k OTM, so it is 0.5% above that - a hair’s breadth.
Sales pipelines are, however, a few percent below where they were 12 months ago. At the end of Jan 2026 agents had 422,067 properties sold subject to contract - that compares to 433,030 at end Jan 2025, 353,395 at end Jan 2024, and 459,094 at end Jan 2021.
Reductions remained over 20k - 20.5k for the week, 12.2% of stock reduced in January, compared to the 2025 average of 12.8% (and the longer average of 10.74%). The fall-through rate is nice and low at the moment; 20.2% in week 6, (longer-term average 24.2% - all far too high of course, but all numbers have to be looked at in context of the “norm”).
January ‘26 saw sales agreed averaging £340.73, Only 0.63% ahead of a year ago. However, I do wonder just how much the cheaper stock selling much more is harming this average and this is why there’s some divergence between more recent figures and the ONS. Let’s see what filters through when we get there. This number is 16% ahead of 5 years ago - January 2021 was really accelerating very fast in terms of pricing and a huge slice of that 16% happened in just one year. We will keep monitoring. Exchanged prices were well above this for the month - £348.13 per foot, which is the highest number on record. Again, is there distortion here because these were deals agreed after the 2025 budget? It wouldn’t seem so, but you know we don’t make decisions based on one month’s data, we just keep abreast of it.
Chris - this is my weekly appreciation paragraph. Thanks for what you do! If you want some help positioning yourself as a local market expert - as an estate agent or any form of property professional - give Chris a shout! Either way give his channel www.youtube.com/@christopherwatkin a follow and some love, please!
Dust off the Macroscope, then. Unemployment and the labour market report. Inflation.The PMIs. This is “meat week”, folks. Enjoy. Bringing up the rear the contract states that we have to talk about the gilts and swaps, and will do so for many years to come, I’m sure.
The labour market report opens - as it will do for some time yet - detailing the number of jobs lost since a year before. 121k payrolled jobs evaporated between December 2024 and December 2025. The month-on-month number was only 6k - but then December is usually a good month for employment as many retail businesses staff up for Xmas, so let’s not get overexcited (I’m not sure there was any danger of that anyway!).
The early estimates suggest another 11k jobs were cut in January 2026 - but these early estimates are notoriously bad - so reserve judgement until next month. Then we get into the data. The employment figure dropped to 75% - remember, this means that 3 in 4 people aged 16-64 in the UK have a job. The others split into unemployed (looking) and economically inactive (not looking). Economic inactivity is still falling, happily - to 20.8%. The difference (and more) is made up by people looking for a job (this anomaly persists in the data because when we talk about unemployment, we remove the top end of the age band - if you are seeking work, you are unemployed, even if you are 65, 75, or more. Under the Labour government thus far, economic inactivity has lowered and the employment rate has risen, from 74.6% to 75%. Pre Covid, we had hit 76.5% so this is what we need to aspire to.
I’m not trying to ascribe politics to all of this by any stretch - indeed, there’s basically acknowledgement this week from Starmer that the policies around pushing minimum wage up so aggressively for younger people has led to youth unemployment as he’s suggested that the crusade to equalize all wages for people over 18 might be slowed down, even though it was a manifesto commitment. At this stage, 15 or whatever U-turns in that we are, he might as well get on with it. A smarter move, of course, would be to offer a national insurance break to the employers for employing under-21s, because that way the employee still gets the money and the “big black hole” somehow finds that revenue from elsewhere - because it is cheaper (and very, very much cheaper in the long run) to ensure that younger members of the population have a job and that employers have a financial incentive to employ them and give them a chance, rather than taking on an older member of staff who inevitably has the edge on experience.
Vacancies have flattened out after the Covid boom, and then the cull. There’s more and more rumblings about AI and a new “bear video” (not sure what your YouTube algorithm looks like, but mine is pumping out some scary stuff around all this at the moment) about how 99% will be the new unemployment rate fairly soon. If this is causing you any anxiety at all (I can recognise my own) - it’s a nonsense, of course. Even Musk’s greatest dream (and this is a man who PROMISED autonomous driving by early 2016, of course, and I remind you we are 10 years on) is that there will be a million Optimus robots out there within 3-4 years doing tasks like surgery to a greater level than the very best human being. Will they be building houses, and providing care? I’m not convinced on that at all, in that timeframe. However, if you think AI is scary - just bear in mind how very many jobs are still safe - robotics is much scarier, but it seems more like a 10-25 year change than a 3-4 year one to me (for the avoidance of doubt - Elon is smarter than me and knows more than me, but his form for puffery in these areas is also evidential - mine is more “search for the truth, whether you like it or not”).
On this subject - which is impossible to avoid if discussing unemployment - I do keep hearing about cuts that are being made in companies - particularly, of course, around marketing and copywriting. The legal skills of AI are being touted much more openly. Professional services are sweating, of course - or counting the extra profits as they cut the junior hires, which the graduate numbers do bear out. But mass layoffs still look some time away across the board. One thing is for sure, however - having shocked the system with the Employer’s National Insurance rise in October 2024, there is most definitely a headwind around job creation - and the “deaf to business” approach adopted by the Labour party won’t be helping anyone want to start any new people-heavy businesses anytime soon. I’m sure the Treasury are considering how to ramp up the Digital Services Tax (however much Mr Trump doesn’t like it) and also whether a “Robot Tax” (which has been a Bill Gates “thing” for a long time) is implementable. Maybe if they are coming from abroad we will indeed have to turn to tariffs, or simply higher consumption taxes. 25% VAT might be on the horizon, folks…..
Earnings growth continued to calm, as we go back to the data. 4.2% breaks back to 3.4% for the private sector, and 7.2% for the public sector. We are still told this is because of 2 rises in 12 months in the public sector and will wash out over the “next few periods”. That 4.2% only broke back to 0.5%-0.8% real terms pay increases overall, and basically nothing if you work in the private sector. 118k working days were lost in December, with over two thirds of those days lost because of the doctors’ strikes.
Ultimately, the number that hit the headlines - the 5.2% - was another unexpected rise compared to the economic consensus, mostly because December is usually good - but the reasoning when you get into the data is another drop in inactivity. There are many ways you could slice this lemon - the fact that 3 in 4 people deemed to be of working age actually work (16-64 is a really bad choice, these days, because society has changed, but I don’t run the ONS of course and there is the argument of being able to compare data across years and decades, although the latter is done very, very rarely indeed), or the fact that more people are trying to get a job (they have moved from inactive to unemployed, actively seeking work). In the real world of employment, where I’ve been doing some recruiting this week, my observation would be that there’s an awful lot of talent out there, and some of it has been recently made redundant (the coal face view!).
OK. Inflation. If there was a mastermind specialist subject for Propenomix, Post-Pandemic Inflation would be the one, let’s face it. 3% was the best guess from the economists, and 3% was the number that was hit. The speculation is that that’s the last time we will see 3% for some time - let’s hope so, but let’s also not forget there has been a bit of a following wind with oil prices and the likes - which can change, like the wind, as we know.
The ONS’s preferred CPIH measure (which includes housing and is more directly comparable to the US and other developed nations) is also happily down to 3.2%, which feels a lot calmer. The 0.3% fall in CPIH month to month, and the 0.5% fall in CPI, are typical January fare, but in January 2025 CPI only fell by 0.1% month to month. Services inflation still looks like 4.4% though, with wage rises coming in April……not convinced we will see that much below 3% for some time, which means goods really need to get a lot cheaper (or we need direct fiscal intervention, as we have in April with energy costs being reduced by moving taxation and subsidy around within the deck of cards).
The January sales did their thing. Many times I’ve pointed out the counter-case for April - council tax will also rise, for example - and the reminders doing the rounds include the one that says just because inflation is falling, does NOT mean prices are falling - it just means they aren’t going up as quickly as they were. This certainly does feel more like a 2.xx% economy as far as inflation goes, but I remain unconvinced of this orderly drop to the target. A lot will depend on how far (or not) incentives go to create jobs as mentioned above, particularly for the young.
Still, the Bank of England will be comfortable enough with what they see here. OOH, the owner-occupier measure of housing, is down to a 3.9% increase, from 8% just one year ago. This is very positive for the sustainability of tenancies and rents in general. The contribution to CPIH from rents was the lowest contribution since March 2022, as tenants breathe a sigh of relief (unless they are getting evicted before the Renters’ Rights Act kicks in, of course).
Private school fee VAT dropped out of the figures, which made a difference. This matter still isn’t settled, it seems, nor has it had the advertised and promised effects - there will be rumblings about this for many years to come, I’m sure, but it helped to get inflation down this month.
So - inflation is conquered? Well, need I remind you that the target is 2%, and we still don’t feel we are back to the world where 2% is the real number? For me, it still feels closer to a 3% world than a 2% world, but my 2.7% end of year best estimate stands, for the moment. I’m not seeing enough just yet to change my mind - simply what we expected and knew is playing out, and some of those tailwinds, like the oil price, have helped. If we go a year without an oil price scare, well, that would be the first one in 5, to say the least.
Still - let the pedants, like me, argue about being between 2 and 3 per cent, and realistically no-one cares. The pathway on rates still looks like 3.5% or 3.25% this year, for the markets, and that to be the bottom of the cutting cycle. The economy might actually start doing OK - but only if households and businesses can get some confidence back. They are DESPERATE for a shot in the arm - but they are starved of one, would be my observation.
Onto the PMIs, my darlings of the real time economy. Good news in the Feb flash numbers - the excellent January figures persist. The flash composite printed 53.9, which - if it turns into the actual number in early March - will be a 22-month high. Services also printed 53.9 on the flash number - and manufacturing a massive 52, which - again if it holds - will be an 18-month high.
The Chief Business Economist, Chris Williamson, ventured into positive territory with his summary. An encouraging start to the year. These PMI prints are congruent with a 0.3% quarterly GDP rise. The kicker? Steep job losses persisting, they say. Like me, he draws the majority of that back to the 2024 budget - which, I often remind everyone, we were told by the Bank of England at the time would take 2 years to fully integrate itself into the market. The counter to the “all roads lead to a rate cut” argument here will be, of course, that if the economy is doing just fine, why do we need to cut rates. However, if 0.3% was all we managed, then 1.2%-1.3% a year is not exactly roaring, of course.
S&P Global also provides a whole host of other reports, two of which I’m going to squeeze in here. Firstly, the UK Consumer Sentiment Index. Dismal - to match the weather - for February. One of the lower prints of the last 2 years, not recovering much from the drop before the budget in 2025. Big ticket expenditure was down to the lowest in 10 months. I’ve spoken several times about the very high savings rate (for the UK anyway) that we’ve been enduring as an economy - people are saving because they are nervous, not consuming - and that’s a self-fulfilling prophecy as far as slow economic growth goes. We are still saving around double what we were - and that’s as a percentage, so there’s no inflationary pollution in that number - before the pandemic. The question at the top level really should be - can we blame them? Are our political leaders, at this time, inspiring confidence in people? Or just inspiring nervousness as taxes might have to go up once again this year?
The other report I’ve summarised here is the KPMG/REC report on jobs. Again, it is more real-time than waiting for the ONS figures. The “positive” headline? Permanent placements fall at the slowest rate in a year-and-a-half in January. The key word? Fall. The PMI is slightly more up to date so it sounds like February’s report on jobs might be more bearish. Temporary billings expanded, more candidates were available, and there were stronger rises in both starting salaries and temp wages. Not altogether negative, but the overall trend remains at fewer jobs, not more. The best insight in the report? That, in my opinion, comes from the REC chief executive when he says “The decisions firms are now making involve lots of trade-offs, such as whether to create jobs in the UK or elsewhere, or which jobs need the human touch as opposed to an automated solution.” He’s nailed it, I think.
On we go with the gilts and swaps, then. The 5 year gilt had a quiet but trending downward week as far as the yields were concerned, opening at 3.815% and closing at 3.785% for the week. It really was a quiet one with low volatility though. The 30-years opened the week at 5.211% yield and decayed slightly more to close at 5.157%, around 5.5 bps shaved off for the week. The yield curve got a little shallower and when we look at the difference over the past year, the shape is very similar in terms of 12 years and beyond, but the shorts and mediums have broadly come down about 0.75% at the short end, and about 0.25% at the medium point. Slower, steadier, less volatility, more like bonds are supposed to behave.
How about the swaps? 3.55% on the 5-year, and 3.357% on the 2-year - are markedly lower than 12 months ago. 45 bps on the 5-year and 70bps on the 2-year. That close of 3.55% on Thursday night corresponded to 3.794% on the gilt - so that discount is now restricting itself on an ongoing basis to 25bps or so.
Where are we going for the deep dive this week? We need to spend a bit of time on the public sector finances, because it was quite lightly reported that HMRC had its greatest month of all time, meaning less borrowing (or a better overall position) than expected. The wolves descend on the slightest miss on the upside, but stay silent in these situations. Why did this happen (and what’s the bit missing from the more dry analysis)? I suspected that the sale of assets in the leadup to the 2024 budget was a big factor, and capital gains tax receipts from business/share sales that took place during that period have now been collected. In one way, Reeves perhaps got what she wanted - in many ways, HMRC loves transactions because they create “crystallisation events” - and frictional costs (like stamp duty) become due, just as capital gains also become due.
The relatively short time window between the rhetoric (that was so miserable) from early September 2024 and the budget itself at the end of October perhaps also offered less opportunity than is typical for a well-planned business exit when it comes to tax efficiency, optimisation and planning.
Here’s the summary, and my take, on these great numbers (if you are HMRC - although I suppose we should all be grateful for a great tax take…..)
Theme 1: The Record-Breaking January Surplus
The Summary: Initial estimates from the Office for National Statistics reveal that the UK public sector recorded a £30.4 billion surplus in January 2026. This figure is £15.9 billion higher than the surplus recorded in January 2025, representing a doubling of the balance and the highest surplus in any single month since records began in 1993. The surplus arrived £6.3 billion above the Office for Budget Responsibility's November 2025 forecast. This exceptional monthly performance was overwhelmingly driven by seasonal tax receipts. January is traditionally the peak month for self-assessed tax returns, and combined self-assessed Income Tax and Capital Gains Tax receipts reached a provisional £46.4 billion. This alone was £10.5 billion higher than the same period a year ago, heavily bolstering the central government's coffers and pulling the monthly balance into firmly positive territory.
The Propenomix Perspective: A record surplus of £30.4 billion makes for a fantastic press release, but I urge a healthy dose of cynicism. January is always a bumper month for the Treasury - it is the month the self-employed and private investors finally write their cheques. What fascinates me here is the sheer scale of the Capital Gains Tax haul. At £17.0 billion, CGT receipts were £7.0 billion higher than last year. Why? Because investors are liquidating. We are seeing landlords and private investors selling up property portfolios and equities ahead of feared tax raids or simply because the regulatory burden has become too heavy. This is not sustainable, organic economic growth. It is a one-off extraction of capital from the private sector. The Treasury is feasting on the sale of assets, not the productive yield of them. Once those assets are sold, that revenue stream disappears - and the underlying structural deficit will be waiting.
Theme 2: The Fall in Financial Year Borrowing
The Summary: Looking beyond the single month of January, total public sector borrowing for the financial year to January 2026 stood at £112.1 billion. This represents a reduction of £14.6 billion, or 11.5%, compared to the same ten-month period in the previous year. It also sits comfortably below the Office for Budget Responsibility's forecast of £120.4 billion for this stage of the year. When expressed as a percentage of Gross Domestic Product, borrowing for the financial year to date is estimated at 3.7%, which is 0.7 percentage points lower than the previous year. Central government receipts rose by 8.4% to £922.0 billion, outpacing a 6.8% rise in central government expenditure, which reached £915.7 billion. The expenditure increases were largely driven by departmental running costs, public sector pay rises, and inflation-linked benefits.
The Propenomix Perspective: The headline narrative is that borrowing is falling, which sounds fiscally responsible until you look at the mechanics. Receipts are up 8.4%, but this is predominantly the result of fiscal drag. By freezing tax thresholds, the government is silently pulling ordinary wage earners into higher bands as inflation pushes up nominal pay. It is a stealth tax on labour and enterprise. Meanwhile, public expenditure is rising at 6.8%, which is vastly outstripping any real economic growth we are seeing on the ground. For property investors watching SONIA swap rates, this is the crucial metric. If state spending remains this sticky, inflationary pressures will not fully dissipate, and the Bank of England will be heavily constrained in its ability to cut the base rate. Gilt yields might look stable today, but the sheer volume of public spending means the cost of borrowing for developers and landlords is going to remain elevated.
Theme 3: The Illusion of Plunging Debt Interest Costs
The Summary: Central government debt interest payable in January 2026 fell dramatically to just £1.5 billion. This is £5.0 billion less than the interest paid in January 2025. This steep decline is primarily attributed to movements in the Retail Prices Index, which dictates the interest payable on index-linked government gilts. Specifically, a 0.4% decrease in the Retail Prices Index between October and November 2025 reduced the capital uplift component of the debt interest by £2.8 billion. Capital uplift is accrued throughout the life of index-linked gilts and affects the principal value of the debt, meaning monthly interest calculations are highly volatile and sensitive to short-term fluctuations in inflation data.
The Propenomix Perspective: I find it highly amusing when the Treasury inadvertently benefits from the very inflation volatility that has punished the rest of us. A £1.5 billion monthly interest bill looks brilliant on a spreadsheet, but let us be absolutely clear - this is an accounting illusion. Index-linked gilts are a double-edged sword. When the Retail Prices Index drops, the capital uplift shrinks, and the monthly interest liability collapses. However, the structural, underlying mountain of debt has not gone anywhere. It is vital that market participants do not mistake this temporary statistical relief for a structural easing of credit conditions. The real cost of capital remains high. While the government gets a temporary reprieve on its gilt servicing, property developers are still facing severe supply constraints, high input costs, and expensive development finance. This data point is a quirk of indexation, not a signal of macro-economic health.
Theme 4: The 92.9% Net Debt Reality
The Summary: At the end of January 2026, public sector net debt excluding public sector banks was provisionally estimated at 92.9% of Gross Domestic Product. While this figure is 2.4 percentage points below the Office for Budget Responsibility's November 2025 forecast, it remains at levels last seen in the early 1960s. Meanwhile, public sector net financial liabilities - a broader measure that includes a wider range of financial assets and liabilities - were estimated at 82.4% of Gross Domestic Product. This creates a 10.5 percentage point gap between net debt and net financial liabilities, largely because the government currently holds extra financial assets that offset some of its wider liabilities.
The Propenomix Perspective: We are hovering at a debt-to-GDP ratio of nearly 93%. Politicians are increasingly pivoting to the net financial liabilities metric because it subtracts illiquid assets and makes the national balance sheet look marginally less terrifying. But as any property developer will tell you, you cannot pay your contractors with illiquid assets. Cash flow is reality. The sheer weight of this historic debt burden means the state has very little room to manoeuvre. Taxes will have to remain historically high, which directly drains private capital away from productive investment and property development. We have a severe housing supply shortage in the UK, and solving it requires private capital and viable lending conditions. So long as the state is monopolising capital markets to fund a 93% debt burden, the private sector will be starved of the oxygen it needs to build and grow.
Knight Frank have recently reported on Land Values - and in spite of the old adages such as “they don’t make it any more” and “land never goes down in value” - it has been, and of course it has been because GDVs have barely moved for a few years, construction costs are still up significantly (they are just going up at a much slower pace than they were), and the cost of debt is also much higher. There’s nothing left to “give” - and developers will know just how sensitive a deal is to the acquisition cost of the land, so if you do find the holy grail of a motivated seller, the haircut they might have to take compared to their aspirations is significant. Here’s the report summary on the Knight Frank publication entitled “Signs of Stabilisation after a Challenging Year” and my take:
Theme 1: The Stabilisation of Land Values and Borrowing Costs
The Summary: UK residential development land values remained flat throughout the final quarter of 2025. Developers' appetite for land was weighed down by uncertainty prior to the November Budget, subdued demand amidst high mortgage rates, a restrictive planning environment, and limited grant funding for registered providers. However, positive signals are emerging, as government borrowing costs stabilised after the Budget. This stabilisation paved the way for mortgage rates to ease in January. Furthermore, the Bank of England stated in February that fiscal measures from the Budget should cause inflation to undershoot November forecasts. This is expected to allow mortgage rates to ease further as the year progresses. Consequently, the prevailing view is that Q4 will mark the bottom of the market.
The Propenomix Perspective: They say Q4 was the bottom of the market, but I have heard that tune played before. Yes, gilt yields have finally settled down since the November Budget drama, and 5-year SONIA swap rates are looking a bit more palatable for the lenders. But let's be entirely real here - calling a definitive market bottom requires more than just a slight dip in fixed-rate mortgages.
The reality on the ground is that land vendors are still stubbornly holding out for 2022 pricing, while developers are staring down the barrel of heavily elevated build costs and stagnant exit values. Until vendors capitulate and accept the new macroeconomic reality, or we see a massive, sustained drop in the cost of debt, this so-called 'stabilisation' is just a polite word for stagnation. Flat land values do not build houses - margins do.
Theme 2: The Urban-Suburban Divide and 'Grey Belt' Opportunities
The Summary: Housebuilders operating in rural and suburban areas are facing fewer obstacles than those in urban locations. The government's grey belt policy is creating new opportunities by offering clarity on the redevelopment of lower-quality land within the Green Belt. Sustainable, well-connected sites that were previously too politically difficult or complex to progress are now attracting interest. Meanwhile, development data shows a tentative recovery in large cities like London, albeit from a historically low base. Work began on nearly 2,300 private homes in Q4, up from 986 in Q3. However, while London has an annual housing target of 88,000 homes, private starts have fallen 84% over the last decade, dropping from 33,782 in 2015 to just 5,547 last year.
The Propenomix Perspective: The 'grey belt' is the latest buzzword to throw around at local planning committees, and frankly, it is about time we had some regulatory clarity on those scrubland sites. If we can unlock sustainable suburban plots without triggering a local uproar, developers will bite your hand off for them.
However, the London figures are absolutely terrifying. An 84% drop in private starts over a decade? And we are supposed to celebrate 2,300 starts in a quarter when the target is 88,000 a year? You do not need a degree in macroeconomics to see that the maths is completely broken. Viability in the capital is dead in the water. Unless the Greater London Authority actually slashes the affordable housing thresholds and cuts the red tape they are currently 'consulting' on, London's housing delivery will remain a rounding error compared to what is actually required to house its population. We’ve talked about this a number of times recently, but these figures are so stark that they bear repeating.
Theme 3: Sentiment Shifts and the Reduction of Regulatory Red Tape
The Summary: A Q4 survey of small and volume housebuilders highlighted ongoing challenges, with 57% of respondents reporting a decline in site visits and reservations during the quarter. Fewer than 10% recorded an improvement in these metrics. The primary constraints cited were buyer sentiment, the UK economic outlook, and planning delays. Despite this, optimism is building, with nearly 30% of developers expecting reservations to rise in Q1 and 57% anticipating stability. On the regulatory front, additional staff at the Building Safety Regulator are helping to ease Gateway 2 delays. Legacy new build cases dropped from 81 in November to 29 at the end of January. Consequently, decision times have fallen significantly, dropping from 37 weeks last year to just 13 weeks now.
The Propenomix Perspective: It is genuinely astounding that we are cheering the Building Safety Regulator for merely doing its job in 13 weeks instead of 37. Do not misunderstand me - any reduction in Gateway 2 delays is a massive win for high-density delivery. However, 13 weeks is still a hefty chunk of time to be holding expensive, un-deployed capital while bureaucrats shuffle paperwork. Hopefully the worst is over.
As for builder sentiment, I always take these forward-looking surveys with a massive pinch of salt. Of course nearly a third of developers expect Q1 to be better - the alternative is admitting defeat to their shareholders. The real test of this market will not be measured in surveys, but in whether the much-touted government buyer support schemes actually materialise. If we do not see demand-side stimulus soon, this modest bump in optimism will evaporate faster than a cheap coat of emulsion.
I’ve also taken a look at JLL’s Global Real Estate Perspective published this week - which, aside from anything else, boasts some impressive investment improvements in the UK and Germany specifically. We made a headline on the global stage!
Theme 1: The Macro Investment Picture & Capital Rebound
The Summary: JLL reports that steady economic growth is expected across major economies in 2026, supported by lower interest rates, contained inflation, and increasing fiscal spending. Global direct investment activity grew by 19% year-on-year for the full year of 2025. Capital markets gathered substantial momentum by the fourth quarter of 2025, fueled by highly liquid debt markets and declining Treasury volatility in the US. Consequently, investor sentiment has firmly shifted toward 'risk-on' behaviour. EMEA investment volumes rose by 16% in Q4 2025, driven notably by the UK and Germany. Furthermore, global cross-border investment finished the year up 25%, indicating a robust return of international capital flows.
The Propenomix Perspective: A 19% jump in global volumes sounds magnificent until you remember the deeply depressed base we are leaping from. The institutional crowd is declaring victory because debt markets are 'highly liquid' again - translation: central banks stopped hiking and swap rates finally stopped having daily seizures. Yes, the UK and Germany are leading the EMEA charge, but let us be absolutely clear about what is driving this sudden 'risk-on' sentiment. It is not some unexpected economic renaissance. It is the simple realisation that sitting on cash while inflation stealthily erodes it is a fool's errand. We are seeing capital deploy because pricing has adjusted enough to make the spreads workable against SONIA. The cross-border money is back because relative value is finally compelling, but do not mistake a return to functionality for a booming bull market. It is merely a reversion to the mean.
Theme 2: The Office Renaissance and the Flight to Quality
The Summary: Global office leasing rose by 5% in 2025, reaching its highest annual level since the pandemic. The global vacancy rate is now declining after peaking in mid-2025. This recovery is largely driven by gateway markets and larger deals, though European deal timelines remain slightly elongated. Construction groundbreakings have hit record lows in the US and a decade-low in Europe. This dwindling availability of high-quality, central space is causing supply shortages, which in turn drives elevated rental growth for premium assets. Organisations are increasingly mandating office attendance, shifting workplace strategies towards creating 'commute-worthy' and experience-driven environments to attract and retain talent.
The Propenomix Perspective: The death of the office has been greatly exaggerated - again. But let us dissect this 'highest level since the pandemic' headline. The reality is a tale of two entirely different markets. Prime, Grade A space in central locations with barista-quality coffee and impeccable ESG credentials is flying off the shelves. Why? Because the development pipeline is essentially non-existent. A decade-low in European construction starts means if you want premium space, you are paying a premium rent. It is basic supply and demand mechanics at play. Meanwhile, secondary assets in peripheral locations are effectively stranded. Landlords owning obsolete 1990s boxes are staring into the abyss, unable to justify the capital expenditure required to retrofit them into these mandated 'commute-worthy' palaces. The occupier market is not expanding uniformly - it is consolidating into quality. If you hold prime, you are in the driver's seat; if you hold secondary, you are holding a depreciating liability. As always - property is a depreciating asset, and if you don’t invest in it, you pay the price.
Theme 3: Logistics and Industrial Supply Dynamics
The Summary: Logistics leasing demand rebounded strongly in 2025 across North America and Europe, overcoming earlier tariff uncertainty. A key driver of the market is the significant decrease in new supply from its peak levels, which is expected to help stabilise or lower vacancy rates over the coming twelve months. Looking ahead, demand is supported by structural shifts such as supply chain restructuring, the regionalisation of manufacturing, rising e-commerce, and increased defence spending. In mature markets, occupier focus is heavily concentrated on highly specified, modern assets in strategic locations. Crucially, access to reliable power is becoming an increasingly critical factor in site selection, alongside a growing trend towards owner-user and build-to-suit developments to allow for greater automation.
The Propenomix Perspective: The industrial sector is finally shaking off its brief hangover. The speculative development pipeline has been strangled by elevated debt costs over the past two years, which is now playing out exactly as expected: supply is heavily constrained, and vacancy rates will tighten accordingly. But the real story here is not just about sheds and logistics. It is about power. The JLL report rightly flags that access to reliable power is becoming critical for site selection. We are entering an era where grid capacity dictates the asset value. You can have the best-located plot in the Midlands, but if you cannot secure the megawatts required for automation and EV delivery fleets, your site is functionally obsolete. The smart money is not just looking at motorway junctions anymore - it is scrutinising local substation capacities. The underlying demand from near-shoring is robust, but the absolute bottleneck is infrastructure.
Theme 4: The 'Living' Sector Surge
The Summary: The global 'living' sector experienced robust growth, with transaction volumes finishing 2025 up 24% year-on-year. The US remains the dominant market, accounting for two-thirds of investment, whilst EMEA makes up 31%. JLL forecasts further growth throughout 2026, driven by improving debt availability in major markets like the UK and the US. Global living investment is projected to surpass the US$250 billion mark in 2026. Long-term trends indicate a shift towards more sophisticated housing strategies, delivering specific types of accommodation such as student housing, co-living, micro-living, and dedicated affordable housing. However, challenges in new apartment construction continue to act as a drag on the sector's overall growth trajectory.
The Propenomix Perspective: A 24% jump in living sector transactions is a stark reminder of where institutional capital feels safest in a volatile world. Beds, quite simply, are defensive. But the narrative of 'improving debt availability' driving the market only tells half the story. The real catalyst in the UK is the chronic, structural under-supply of housing. Institutional money is pivoting hard into build-to-rent, student accommodation, and co-living because they offer reliable, inflation-linked cash flows in a market where private landlords are being taxed and legislated out of existence. However, the report casually mentions 'challenges in new apartment construction'. That is the understatement of the decade. Planning delays, inflated material costs, and onerous building safety regulations are crippling development viability. The capital is waiting to be deployed, but the product simply cannot be built fast enough or cheaply enough. Consequently, existing operational assets are trading at a premium.
Last up, then, this week is a special Deep Dive report from the Centre for Cities; their report on the East and West Midlands caught my eye because of my geographic location, of course, but also on the basis that I’ve had a deliberate and inherent bias towards the East Midlands over the past decade or more - did I get that right, and am I still getting it right, if so?
Theme 1: The Disposable Income Deficit and Deprivation
The Summary: The "Cities Outlook 2026" report paints a stark picture of the UK's regional inequalities, highlighting a massive gap in disposable income between the Greater South East and the rest of the country. The data confirms a direct correlation: lower incomes mean more deprivation. Across the East and West Midlands, numerous urban centres - including Birmingham, Nottingham, Coventry, Leicester, Stoke, and Derby - have a high share of their neighbourhoods ranked within the top 20% most income-deprived nationally. For several of these cities, disposable income per person remains severely constrained, hovering below the £18,000 threshold when adjusted to 2025 prices.
The Propenomix Perspective: This is the brutal reality check for anyone buying off-plan flats in the Midlands based on glossy brochures promising infinite rental growth. The index says these cities are ripe for regeneration, but real-terms disposable income tells a completely different story. If local wages are stagnant and a huge chunk of the population is living in the most deprived neighbourhoods nationally, your tenant pool has a hard ceiling on affordability. You can paint the walls Farrow & Ball and put in a boiling water tap, but if the local disposable income is under £18,000, you will eventually hit a brick wall. High deprivation restricts rental mobility. As an investor, you need to look at these stats and realise that buying in these postcodes requires a strategy focused on robust, long-term cash flow and tight void management - not speculative capital appreciation driven by a non-existent wage boom.
Theme 2: The Lost Decade of Economic Growth
The Summary: Examining output and living standards over the past quarter of a century, the report illustrates a significant shift from the buoyant economic period between 1998 and 2008. Following the 2008 financial crisis, the nation experienced a notable decline. Furthermore, since 2013, the UK's economic recovery has been distinctly slow and uneven. When evaluating city growth specifically from 2013 to 2023, the data shows that the majority of Midlands cities - including Derby, Leicester, Coventry, and Nottingham - have failed to keep pace with the national average for both economic output growth and disposable income per resident growth.
The Propenomix Perspective: We have basically sleepwalked through a lost decade - or more accurately, a lost fifteen years. Since the GFC, the wider property market has relied almost entirely on cheap debt and low SONIA swap rates to paper over the cracks of fundamentally stagnant economic output. If places like Derby and Nottingham aren't growing their actual economic footprint, the local housing market is relying purely on chronic supply constraints to keep prices afloat. This is a precarious position. When borrowing costs normalise and the cheap money is turned off, cities with no underlying economic momentum are the first to suffer. Real house price growth requires real wage growth. If a city has been lagging behind the national average for economic output since 2013, you have to seriously question what the catalyst will be to drive future property valuations, other than sheer inflation.
Theme 3: The Productivity Problem and the 'KIBS' Shortfall
The Summary: The Centre for Cities identifies a productive business base as one of the primary ingredients required for raising living standards. A crucial driver of this productivity is the presence of Knowledge Intensive Business Services, commonly referred to as KIBS. However, the economic performance indicators for the Midlands are concerning. Cities such as Birmingham, Coventry, Derby, Leicester, Mansfield, Nottingham, Stoke, and Telford are all grouped together as underperforming relative to the UK average. These specific cities sit firmly below the national average concerning their KIBS share of jobs, their overall productivity levels, and their average workplace wages.
The Propenomix Perspective: This is the absolute crux of the issue. You cannot just build shiny build-to-rent towers and pray that high-earning tech professionals will magically appear. Without Knowledge Intensive Business Services driving up local workplace wages, you are severely capping your premium tenant demographic. The UK's productivity puzzle isn't going to be solved by a local council planting some trees and opening a pedestrianised shopping zone - it requires serious, structural corporate investment. As a property strategist, I don't care about a mayor's promises; I want to see where these KIBS jobs are actually putting down roots. If a city is below average for high-skilled jobs, the local rental market will remain dominated by transient, lower-wage employment. That means higher turnover, greater sensitivity to inflation, and a much harder job for your letting agent.
Theme 4: Housing Costs as a Share of Consumption
The Summary: The data explores the relationship between disposable income and household spending on housing, highlighting how successful places manage to ease constraints. Residents located in the Greater South East commit a significantly higher estimated share of their consumption to housing when compared to the rest of the country. Conversely, across the Midlands, residents in cities such as Mansfield, Derby, Stoke, and Nottingham spend a visibly lower proportion of their income on housing, generally falling between the 7% and 12% mark (note this is disposable income per person, not per household).
The Propenomix Perspective: Welcome to the classic yield trap. On paper, lower housing costs as a percentage of consumption make these Midlands cities look like absolute cash cows for southern investors hunting for double-digit yields. But you have to look under the bonnet. If absolute disposable incomes are sitting at the bottom of the barrel, that mathematically lower percentage still leaves incredibly tight financial margins for your typical tenant. When retail inflation bites or utility bills spike, the buffer is non-existent, and rent arrears go up. I would much rather take a slightly lower gross yield in a high-productivity area with wage growth than chase a spreadsheet fantasy in a city where the local economy is flatlining. Lower housing costs as a proportion of spending aren't always a sign of affordability - sometimes they are just a symptom of an economy where nobody can afford to pay more.
The flip side of this equation, of course, is that we are looking backwards here over the past decade or more. What we need to do is look forward. I won’t be the only one who remembers just how often the soundbite “levelling up” was used, with it now basically being phased out altogether. The lack of urban density seems to be continuing to hold the Midlands cities back - and with all the difficulties around building “High-Risk Buildings”, even if we are past the very worst of it, is that going to be sorted out relatively soon?
Suburban development looks vastly superior, at this time, but that inevitably graduates towards the top end of the market, where there are solid margins - although those building executive detached houses at the moment, with the clog in the market that there has been over the past 12-18 months are far braver than I am. As so often, when we look at future development viability in the UK, there are more questions than answers, and I retreat back to the comparative safety of the secondary market.
So - our Manchester Property Business workshop is continuing to sell very well. This is a workshop in huge demand, as we talk about exits. We cover tax, risk, deal structuring and exit options - not just for you, but for those who you will inevitably be dealing with to buy assets, portfolios, companies and the likes from. Can you help with their exit? I have, over the years, often because they have no real formal plan of their own - and added massive value, getting deals over the line. Have you got children or are you planning to leave a legacy? What does your plan look like? Do the kids know about it…….they often don’t, and - spoiler alert - they often don’t want to play ball either!
As always we have real life case studies about our own experiences, and close with our “no-holds-barred” Q+A. Anything individual to consider? Get a VIP ticket and join us for dinner, in a smaller setting with an opportunity to discuss any specific roadblocks or issues in your property business at the moment. Our VIP dinner was absolutely incredible in January, and got some superb feedback - the upgrade is well worth it. There’s ONE Super Early Bird VIP dinner ticket left! Grab it before someone else does! Book your tickets for Wednesday 22nd April, Central Manchester at: www.tinyurl.com/pbwten
Above all - please remember to Keep Calm, ALWAYS listen to or read the Supplement, and Carry On. There will be opportunities abound this year and towards 2030 and beyond - the landscape has been set for a surefire bull run. Capital growth looks set to remain slow(ish) at the moment, although if you are in the right part of the UK, you will be well looked after by the combination of that plus inflation, the big bull run needs some runway first (although let’s see what the FCA and PRA do around easing lending requirements again) - but let’s have an amazing Golden Quarter together, it is a case of “here we go” in my opinion.