13 Nov 2018

UK unemployment and average earnings due

PM Theresa May gave a speech at the Guildhall last night in which she said Brexit talks were “in the endgame” and that the issues being addressed were “extremely difficult”, as is often the case with the final stretch of negotiations.

As widely reported, she reiterated the intensity of talks that were underway, with Downing Street highlighting the Irish border as being the biggest remaining issue. Earlier yesterday the chief EU Brexit negotiator Michel Barnier reportedly said that the main elements of an exit treaty text are ready to present to the UK cabinet on Tuesday, with that comment rebuked by PM May for forcing the pace of divorce deal talks and attempting to ‘bounce’ the UK into accepting Brussels’ latest proposal. PM May clearly cannot be viewed as being corralled into accepting Brussels’ proposals for the exit mechanism from the temporary customs union arrangement. 


Cabinet convenes for its regularly scheduled meeting today and whilst Brexit will be discussed, it seems unlikely that this will be a final ‘sign-off’ meeting with another round of push back to Brussels likely. Indeed, May is trying to wed her Cabinet together behind what needs to look like a UK-led backdrop exit mechanism. Of course, beyond that PM May also needs reach an agreement with Brussels which has at least a decent chance of passing Parliament, with the prospect of ‘no deal’ offered as an alternative. Developments in Cabinet today and any UK response to Brussels will give us a clearer idea of whether the parts can move into place for a last minute November Summit to be scheduled for sign-off of any package in the European Council.


UK unemployment and average earnings due


The Bank of England's monetary policy strategy is principally centred on the expectation that a tightening labour market will be the source of higher medium-term inflation pressure via higher wage growth. Last month's data did little to change that perception. Unemployment held steady at its joint 43-year low of 4.0%. Meanwhile weekly earnings growth picked up by more than expected to 2.7% (3m yoy), and to 3.1% excluding bonuses. The latter represents the fastest pace of underlying earnings growth since January 2009. We doubt that the big picture will change enormously this time, but we may see a nudge up in the jobless rate. 


Last month's release showed the number of those in jobs slipping by 5k. The figures can be volatile on a 3m/3m comparison, and the reason employment dropped seems to be that inactivity increased by 103k. But the dynamics of the numbers has resulted in the jobless rate trending a touch above the 4% level (to two decimal places) and we suspect that this month's outturn will tip it over the edge to 4.1%. On earnings, we are projecting regular pay growth to have held fast at 3.1% (3m yoy). But June, which was a soft month for bonuses, will fall out of the 3m yoy calculations this time. Hence we envisage headline earnings growth pushing up to 3.1%, the same pace as the ex-bonus series. Both unemployment and average earnings figures are due for release at 09.30 this morning. 


HBRN: NAV build in H119 at odds with the share price 


HBRN has today released its H119 (end-September) results. At a headline level, EPRA NAV per share has come in at 166.3c, +4.5% in the period. The company has made progress in terms of its development pipeline; capital recycling; and asset management. The dividend was upped to 1.5c per share from 1.1c in the same period of its last financial year. The group made solid progress on the asset management side during the half, with the annual contracted rent roll at €60.9m (end-March 2018: €56.0m, but this included the since-disposed of New Century House, which had contracted rents of c. €3.1m per annum). The WAULT has strengthened to a record 7.7 years (end-March: 7.3 years), providing strong visibility on income. 


The headline vacancy rate was 3% at end-September – the same level as in March. While this may rise in the near term as the committed developments complete, the strong fundamentals of the Dublin office market (see our report: Buy ahead of the interims, published on November 7, for more on this) should ensure that this will only be a temporary issue. The reversionary potential of HBRN’s ‘in-place’ CBD offices stands at 20% with an average period to the earlier of rent review or expiry of 2.5 years. The biggest deal that HBRN was involved in during H1 saw it take the vendor side as it sold out of New Century House for €65.3m or 39% more than it paid for the asset in 2014. The group has made good progress in recycling this capital, snapping up a small Docklands office asset (50 City Quay) for €2.7m during H119, while since the period-end (and as announced yesterday) it has lifted its landbank in the Gateway/Newlands Cross area by 98 acres at an up-front cost of c. €29m (there will likely be further payments contingent on rezoning gains) to nearly 144 acres, providing a long-term value creation opportunity in the form of a mixed use development. 


Here we would note that the existing South Dublin County Council development plan for the area runs to 2022, so for HBRN to recycle nearly half of the proceeds from the income-producing New Century House into low yielding land is probably a strong signal about the pre-letting interest in its committed developments. On the development pipeline, both 1SJRQ and 2WML are “delivering shortly”, which will add 172,000 sq ft of (mostly office) space to its portfolio. 


HubSpot has been confirmed as the tenant for all 112,000 sq ft of office space at 1SJRQ on a 20-year lease. The company has recently broken ground on its 50,000 sq ft Cumberland Phase II office scheme, which is due for completion in H1 2020. More than 50% of these three schemes are now pre-let. In addition to yesterday’s announcement, the development pipeline has also been expanded through the acquisition of 129 Slaney Road, a 3.8-acre industrial unit with potential for future rezoning to mixed use. Helped by the capital recycling detailed above, HBRN finished the half with gearing of just 12.3%. The group had cash and undrawn facilities, net of committed development spend and the Newlands acquisition, of €150.1m at end-September.