CBRE forecasts an average capital value decline of around 4 per cent this year, but a moderate recovery from 2018
Average commercial property values rose by 0.3 per cent in February, according to the CBRE index, bringing average capital values to within less than 1 percentage point of where they were prior to the EU referendum. Industrial property and non-London offices recorded the strongest growth at 0.5 per cent and 0.8 per cent respectively.
Meanwhile, most sectors show increasing rents, with some seeing growth at 2 per cent or even 3 per cent in certain industrial and regional office markets.
In terms of general commercial property investment market activity, volumes picked up a little in February following a slow start to the year, although the total for the first two months of 2017 is still over 30 per cent short of the equivalent period in 2016.
CBRE forecasts published in November suggest an anticipated average capital value decline of around 4 per cent this year, but a moderate recovery starting in 2018. It also forecasts very average, albeit steady, rental growth for most regional cities. Some major cities, such as Birmingham, Manchester and Southampton, are expected to have the strongest growth, at more than 2.5 per cent a year. But all markets covered by the index are predicted to reach record highs over the next five years, barring major unforeseen events.
We continue to see increased demand for commercial and mixed-use investment funding, partly due to a continuance of certain factors outlined below in the residential market. These suggest landlords remain comfortable with a modest forecast capital value reduction in the short term, given both the expectation for recovery beyond that and the yields that can be achieved with good-quality commercial assets.
While this article is focused on the commercial market, it is appropriate to mention certain factors and recent events affecting buy-to-let funding.
Interventions in the housing market have been a regular feature of recent budgets so it was a pleasant surprise to see no further changes to housing taxation during the chancellor’s last outing. Recent stamp duty changes in combination with Help to Buy appear to have resulted in exactly what the Government intended: tipping the market towards first-time buyers at the expense of investors.
However, some negative side-effects have become apparent. A survey by the Royal Institution of Chartered Surveyors shows landlord instructions down in every region except the East Midlands, with rents rising in all regions other than London and Scotland. For those still unable or unwilling to buy their own home, this could be a bitter pill to swallow.
On house sales, HM Revenue & Customs figures show volumes have been slowly recovering since their low point in the middle of 2016. However, the RICS survey puts new-buyer enquiries flat since November, suggesting this upward trend is likely to slow.
Analysis from Rightmove has found annual growth in asking prices at its slowest for almost four years, with London down by 0.4 per cent year-on-year – the weakest figure since 2011. Sales in London are taking an average of 71 days, compared to 58 days a year ago. The UK-wide figure is 79 days, which is unchanged from last year.
Whichever type of asset is favoured by landlords during these exciting yet changeable times, it has never been more important for them and their advisers to use the knowledge and expertise of a partner that really understands the market in order to ensure they get the best finance deal available.
Case study: Business purchase by staff member
The case: We were approached by an introducer whose client wanted to buy the carpentry business in which he had worked for several years as a joiner, including the premises. The applicant had already been turned down by various high-street banks due to the loan-to-value required in conjunction with his lack of experience in running a business.
The solution: After fully assessing the case, including detailed analysis of the trading accounts for the business being purchased, and persuading a lender of the applicant’s ability to continue running the business successfully, we secured funding at 75 per cent of the open-market value of the trading premises, at 4.99 per cent above base rate.
Jane Simpson is managing director at TBMC