Is 2018 the best time to buy commercial property?
Jan 15 2018
Why is now the best time to purchase commercial property?Last year was considerably stronger than many anticipated. The economy pleasantly surprised many businesses and forecasters, with unemployment falling to the lowest level since 1975, consumer spending robust, and occupier take-up healthy. According to Knight Frank, London office take-up is on the increase, despite the impacts of Brexit, with demand in the West End at its highest for more than a decade. Savoy Stewart concluded, from their analysis of the research, that the third quarter of 2017 recorded the highest level of office take-up in 2017. A substantial 3.8 million square feet of office space in central London was under offer and was due to complete by the end of the year. As a result, 2017 was set to have its strongest final quarter since 2014. According to Patrick Scanlon, head of Central London research at Knight Frank, although the full implications of Brexit may still not have been felt yet, to date the number of occupier requirements have not fallen away, as many had predicted. In addition, Walter Boettcher, Chief Economist at Colliers International, said that this year, “the UK government will have no choice but to shed some light on the Brexit strategy, which will bring a welcome boost of confidence to the occupier and investment markets.” Photo credit: Tony Baggett/Shutterstock
Trends for 2018The uncertainty over the UK’s relationship with the EU will continue to cast a shadow over economic growth throughout 2018, resulting in a more cautious outlook amongst investors across all commercial property sectors. The market may encounter potentially large issues this year, such as political uncertainty, rising rates or consumer debt, which may have a profound effect on activity, investment demand and property returns. Not forgetting the elephant in the room: Brexit. However, although activity may be subdued, it doesn’t mean investment will stop any time soon, as according to JLL, investment volumes in the UK commercial property market, this year, are expected to total around £55 billion. Savoy Stewart looked into Savills ‘Sector Outlook’ and found the following six trends for 2018:
- Non-domestic demand for UK commercial property to remain strong With the pound staying weak and UK commercial property yields now looking high in comparison to prime European and Asian markets, the non-domestic investor demand for UK commercial is set to remain strong in 2018.
- Now is the best time to add value, and for opportunistic investors With risk-averse domestic and global investors dominating the market in 2018, there will be less competition and falling prices in secondary and tertiary markets. This means now is the premium opportunity to value-add and for opportunistic investors looking to change short-term income into long-term.
- 2018 will be the year of alternatives The unifying theme among the plethora of alternative asset classes is their long-term secure income streams and popularity among risk-averse investors. So, 2018 will be the year that alternative becomes mainstream.
- Real earnings growth will improve for the retail market In 2017, a perfect storm of negativity hit retail. For 2018, we will see better news about real earnings growth, and a less homogenous attitude to retail with investors. Some segments will be a good buy due to their defensive characteristics, while others just look cheap.
- The Brexit risks will be much clearer With London’s office market shrugging off the worst of the pre-Brexit negativity, 2018 will see more balance in the assessment of how much, where and when occupational risks will rise.
- New-tech tools, such as AI, will emerge While wellness and staff satisfaction will continue to increase in importance for many employers when choosing buildings and locations, some businesses will start to look at offsetting the costs of delivering wellness by using the margin-enhancing tools of artificial intelligence (AI).