London’s Commercial Property Market 2017 — Boom or Bust?
18th September, 2017
2017 is rapidly disappearing before our very eyes and the past 18 months have seen major political changes taking place across the globe. Has the Brexit vote and the uncertain climate helped or hindered the UK’s commercial property outlook? As we traverse the Brexit proceedings are investors feeling hopeful or concerned? What effect did Qatar’s departure from the UAE have on our markets? We take a look at how London’s commercial property market has fared in the first half of this year in spite of the changing climate worldwide.
Turnover is Thriving
International real estate advisor Savills recently released figures stating that “total turnover for 2017 to the end of July reached £11.5bn, marking a 24% increase on the same point last year”. With the start of 2016 dominated by the Brexit referendum and a very uncertain outlook, it appears that investors are welcoming the knowledge that 2017 has brought us a clearer vision of what lies ahead.
Whitechurch Securities investment director Gavin Haynes is positive about the future, despite initial concerns in the immediate Brexit aftermath. Haynes notes: “cash (is) continuing to provide a negative real return, there are opportunities across asset classes that can provide more attractive long-term growth prospects and more attractive yields.” The upshot is that yields are undeniably attractive and for “investors worried about capital values, the income provides a nice cushion”.
The snap election in June of this year offered up the hope of steering us away from a ‘hard’ Brexit and the subsequent month of July saw £2.352bn invested in central London’s commercial property making it the strongest month recorded since March 2007. Has the possibility of a ‘softer’ Brexit reinvigorated investors and instilled a degree of confidence once again in the UK’s future or do we need to look further afield?
“Serviced office take up across the UK has more than doubled in the first half of this year, reaching 1.07 million sq ft compared to the corresponding period in 2016, which saw 386,750 sq ft acquired. London saw a significant increase with take-up reaching 860,368 sq ft in the first half of 2017, a 186% increase on the 300,506 sq ft in the first half of 2016.”
Asian Investment Dominates
Whilst there has been concern that falling Chinese investment in UK real estate could have a detrimental knock-on effect on commercial property prices following China’s cabinet guidelines to regulate overseas activity, overall Asian investment seems to be thriving.
Savills reveals that July’s impressive turnover was boosted by the £1.3bn sale of the Walkie Talkie building to Hong Kong-based Infinitus Property Group, a sale that accounted for 61% of City turnover in July.
Figures from the end of July reveal that Asian investors “accounted for 63% of total City turnover in the year so far, followed by European investors at 17% and UK investors at 11%” suggesting that the boom for the UK market is actually coming from overseas.
This is evidenced further by the fact that “in the West End market, Asian investors accounted for approximately 50% of turnover to the end of July, with UK institutions accounting for just 2% of acquisitions by turnover.”
The Road Ahead
The start of August saw an announcement of restrictions by the Chinese government that will reduce real estate investment from mainland Chinese property developers and institutions. However, it looks likely that investors from Hong Kong will continue to be active, albeit with slightly selective buying criteria.
As we approach the end of 2017 and more stock comes onto the market the outlook looks to be a positive one with Stephen Down, head of Savills central London investment team, suggesting that “total 2017 investment volumes may well surpass those of 2016.” Jason Baggaley, the veteran manager of the £463m Standard Life Investments Property Income Trust, reinforces the positive sentiment observing that “post-Brexit vote uncertainty that blighted the UK commercial property market has receded, with ‘normality’ having returned.”
“At SHB10 we expect the market to become more and more active as post-election markets have stabled and confidence in the market has increased greatly.”
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