Commercial property has weathered stormy conditions before
The B-word continues to cast its shadow in RICS’ “state of the nation” UK Commercial Property Market Survey.
When posed the question “have you seen any evidence of firms looking to relocate away from the UK in response to the Brexit vote?”, around 25 per cent of respondents said yes. When asked if they expected to see firms relocating over the next two years, this increased to 50 per cent.
Ever since that seismic referendum vote in 2016, RICS has asked its survey respondents each quarter whether they have seen any evidence of firms looking to relocate at least a portion of their business as a result. Before jumping to that 25 per cent figure in Q3, the proportion saying yes has consistently hovered at around 15 to 18 per cent.
It is hard to say whether the increase represents a firm statement of intent or mere mood music regarding the end game of the negotiation process.
Despite such indicators, commercial properties continue to be a good bet. Mortgage brokers and lenders are increasingly seeing investors move away from traditional vanilla properties and looking at more complex buy-to-let. Rents on commercial lets tend to be higher, offering a better yield for landlords when margins get squeezed.
The UK’s commercial property stock has grown on average by 3 per cent year-on-year since 2000, according to the Property Data Report.
The market was worth £833bn in 2016, representing 10 per cent of the UK’s net wealth. Investors owned £486bn worth of non-residential property, with overseas investors owning just under 30 per cent.
It is safe to say some areas are more buoyant than others. This is exemplified in the commercial sector’s holy trinity of industrial, office and retail space.
The Q3 RICS survey showed clear demand for industrial space, with a steady run of uninterrupted growth stretching back to 2012, benefiting from the shift towards online shopping. The demand for office space was unchanged but retail space demand from businesses saw a fall for the sixth successive quarter.
The retail sector is displaying challenging rental projections across the UK, with an expected downward trend for both prime (good transport links and close to amenities) and secondary (within walking distance to transport links and amenities) locations.
It is hard to say what effect increased Brexit pressure will have on our high street.
The London market for secondary office space is expected to see a slight fall in rents and the outlook for prime office rents in the capital is looking relatively flat but, regionally, the picture looks more positive.
Prime industrial values are also rising confidently throughout the UK, with secondary industrial prices strongest in the Midlands and the South of England.
The views of the panel of chartered surveyors interviewed for the RICS survey provide a mixed picture. Some areas such as East Anglia are showing market resilience despite uncertainty over negotiations, whereas businesses in the North East and North West are taking a more wait-and-see approach. Scotland is experiencing a slowdown in the property market.
To sum up, then, commercial property is still looking like a good investment option with high yields and both prime and secondary industrial office space showing excellent growth potential.
Commercial property has faced economic and political uncertainty in the past, so there is nothing to suggest it will not be able to maintain its competitive edge from March 2019 and beyond.
Lucy Barrett is managing director of Vantage Finance