Commercial Watch: We can only watch and wait

Optimism within the sector will remain cautious as political events, both domestic and global, dominate the rest of 2017

The ‘steady as she goes’ recovery in commercial property values that I wrote about in my previous article appears to have continued through March, with reported average capital values increasing by 0.5 per cent.

However, the fine detail of individual sectors seems more of a mixed bag, with the industrial arena experiencing good growth in contrast to a more sluggish retail market.

Industrial estates in particular were the star performers, with values nationwide having risen by 2.7 per cent on average.

Rental values also seem to be creeping up across the board, although there is a notable split between southern England and other parts of the UK. Retail units in London are still delivering moderate growth but office space in Scotland has been particularly hit: the most adversely affected of all areas and sectors by Brexit uncertainty.

Auction activity is a good measure of investor confidence and the market overall, so the March sale days are worthy of commentary. Figures from Allsop show 78 per cent of its March commercial auction lots sold on the day.

There appears to be more appetite for sub-£1m property, given the sale rate for lots in excess of that amount was somewhat lower, at 62 per cent. Interestingly, a significant number of those £1m-plus lots were sold after the auction date.

Also interesting was the fact a substantial shopping centre in Lincolnshire sold for £2.7m, some £500,000 more than it had been bought for 18 months previously (albeit the lettings portfolio within that asset seems to have been improved during that time). This highlights the volatility of local retail stock, particularly such higher-value assets.

The same asset reportedly changed hands for over £5m in 2005 – pre-crash, of course.

Acuitus also achieved an impressive 86 per cent sale rate at its auction on 31 March, with 94 per cent of Scottish lots sold.

Some independent forecasters are suggesting a degree of cautious optimism about UK economic prospects. Resulting forecasts of declining commercial property values have also become a little more restrained.

Brexit effect

Since Prime Minister Theresa May triggered Article 50 in March, much Brexit rhetoric has been reported from all sides. In reality, though, I expect little progress for some time, for a variety of reasons.

Not least of these is the small matter of the German election in September. Given the importance of both that country and its chancellor within the EU, there will be little genuine advancement in Brexit negotiations until the German people have made their political choices.

As matters stand, we appear to have entirely incompatible stances from both the UK and the EU, although this was perhaps to be expected in the initial exchanges at least.

May’s stated position of resisting both EU freedom of movement and membership of the Customs Union, while also confirming the UK will not remain under the jurisdiction of the European Court of Justice, is diametrically opposed to the EU’s stance in all those areas.

This, coupled with the EU’s refusal to negotiate free trade agreements until the UK has agreed to pay an ‘exit bill’ – at whatever level that turns out to be – suggests reaching agreement within two years may be challenging, to say the least.

As if this was not enough on its own, the UK’s surprise snap general election has done little to improve economic certainty. The time taken out of what could have been precious pre-negotiation efforts, to divert energy into electoral campaigns, is one unwelcome result.

So what may the markets do over the next couple of months? The only thing we can predict is unpredictability.

Jane Simpson is managing director at TBMC