Like two old-fashioned fairground favourites, the property market continues to be scary


‘Corporate rentals’ provide a good barometer of the wider effects of the recession.

This is the term given to leases taken on houses and flats by companies and government and quasi-government organisations to accommodate staff sent from their normal place of work, either on secondment or to start a operation.

As such, corporate rentals have played a big part in the overall letting division of D J Alexander, regular clients having included Royal Bank of Scotland, HBOS, Standard Life, Marks & Spencer and the BBC. However, as commercial organisations (and, in some cases, even government ones!) draw in their belts, so business expansion turns into retraction and there is, inevitably, less demand for corporate lettings in Edinburgh and Glasgow, as well as in the large provincial English cities.

Consequently corporate leases handled by this firm are down by approximately 50 per cent on 18, months ago, a figure that I am reasonably certain is mirrored elsewhere.

Yet, overall, our rental business is holding up remarkably well, with the amount of new monthly lettings (approximately 200, on average, across our Edinburgh and Glasgow offices) being slightly above last year’s average.

There is a simple explanation for this: a healthy level of demand for rented property from private individuals has more than made up for the downturn in the corporate sector. With fewer mortgages being granted, existing tenants who might otherwise by now have moved onto owner-occupation, are renewing their leases while new tenants are coming into rented property in roughly the same numbers as before. As for the student market, it is stronger than ever (one recent viewing of a flat for multi-occupation in Marchmont in Edinburgh attracted 70 inquiries).

Even so, landlords are having to compromise on rent, especially those with properties at the upper/middle and top ends of the market, for which companies would once have been eager to pay a premium.

Not so long ago, tenants who wished to renew the lease of a flat in a popular area would almost certainly have had to agree to pay more. Now the boot is on the other foot and tenants who hope to stay on are negotiating downwards – say, securing continued use of the property for £800 a month when previously the rent had been £1,000 a month.

Landlords, for the most part, are prepared to accept a lower level of rent, except of course in instances where a tenant demand is totally unrealistic. This has been made easier to accept because their own outlays – in terms of mortgage costs – have fallen so sharply, at least among those who are not on fixed rates.

So for landlords, the rental market at the moment is akin to the Roller Coaster, that old fairground favourite, that seems to have survived the digital age: a series of dips matched by quick recoveries. First corporate lets cause the car to take a dive, only for an increase in private rentals to haul it upwards; then a drop in rental rates causes another dive, only for the car to gain height thanks to a reduction in mortgage rates.

But if the rental market is the Roller Coaster then the sales market must surely be compared to the much scarier Big Dipper: its passengers are currently on the longest and steepest dive of the entire ride; everyone expects the car to reach ground level and then quickly move up again, but no one seems to know when that will happen.

Despite the closures, cutbacks and job losses affecting the general population there are still plenty of cash-rich individuals eager to buy property, and with rates for deposits hovering at around 1 per cent it is not difficult to understand why.

However, even with such derisory savings rates, there is an understandable reluctance, on the part of investors, to commit to property at the present time when no one really knows how steep the Roller Coaster dive is likely to be and how long it will take before the car starts to make its upward turn. One respected international bank (if there is such a thing nowadays) suggested just recently that house values in the UK would fall by 55 per cent (from their present rates) before starting to recover. My instinct is that it wont get as bad as that – but who is to say the bank projection will be wrong either?

Almost as shocking as the downfall of the Dunfermline Building Society was the complete absence of queues of worried depositors anxiously snaking along the front and side of branches of the society, hoping to get their money out before the doors were slammed shut. That ordinary savers should act in so blasé a manner towards the liquidation of such a well-respected financial institution is a scenario that I have never experienced before and may be proof that the UK has now reached its “Japan moment” – which, for the Japanese, actually lasted a decade.

In a report last October I predicted that the market would bottom out by the end of 2009 but in January of this year I was less sure and revised this to the spring of 2010. Sadly, nothing has occurred within the last three months to persuade me to return my prediction to the earlier date – and with each new financial revelation it’s getting harder to stick with the later one too.