What will happen in 2018? How will the commercial property market change? At the beginning of every year, the same questions always come to surface, with various property stakeholders having different opinions and objectives for the year ahead. This year has had somewhat of a difficult start with the news coming out of Carillion, with the staggering statistic that the company had less than £30million in cash at the point in which it was placed into administration. Although this highlights a difficult start for the sector, it is not all doom and gloom…
Knight Frank released ‘snapshot for 2018 predictions’ which demonstrates the positive signals for the year ahead. For instance, the office sector activity has been buoyant, 2017 was a strong year, mostly kept solid by foreign investment which is expected to continue moving forwards into 2018, with additional interest in the industrial market. Currently, the industrial property sector is predominantly under UK ownership, but an increase in foreign ownership is expected this year. Knight Frank’s research unveils their opinions that retail will become the new industrial, with returns much higher amongst retail property, especially retail warehouses. The industrial market is also receiving positive forecasts from Savills and Cushman & Wakefield’s reports. Savills research shows the urban logistics sector predicting to deliver both the highest income yield and strongest capital growth prospects, and Cushman & Wakefield’s report shows how the increase in e-commerce has resulted in urban logistics being in short supply in most of Europe’s cities – demonstrating strong tenant demand, secure income, competitive rental rates and high investor interest!
The trends and predictions seem to be a constant across multiple research documents posted by the major Property Practices, as you can see above. After reading the Savills ‘curtain raiser’ for 2018, an interesting point was around the secure of long-life investment streams, which are predicted to be even more highly prized by real estates investors over the next five years than before. This is due to a number of factors, including the market awareness for long-term security to minimise the uncertainty factor surrounding Brexit and the on-going negotiations. These secure investments are anticipated to account for over 60% of projected returns from UK property assets for the period to 2022, compared to just 45% over the last 10 years. The main assets sought after by investors are core commercial property such as offices and logistics, however, due to the shortage of these assets; investors are expected to start looking at ‘alternative’ assets that produce income such as cinemas or student houses. Savills report concludes the advice, that due to the unpredictability of certain factors, for example, Brexit causing uncertainty on the sterling value or the increase in online shopping affecting retail stores and warehouses, development or asset management across all subsectors reduces risk and results in long, secure income.
In summary, 2018 looks set to be a year of change and positive activity for the property market, albeit with somewhat of a surprising start! Naturally, the main ‘fear factor’ is around Brexit, however, the initial negotiations have not hit the economy as hard as initially predicted, meaning the end result might not be so adverse either.