While commercial property investment has fallen, the commercial rental sector is looking much brighter.
Despite no clear route for the UK post-Brexit, or indeed whether Brexit goes ahead as questioned by the Guardian, the UK property market is on something of a rollercoaster ride.
Commercial Property Investment
2016 has been nothing if not turbulent. But post EU Referendum confusion, continued concerns about housing shortages and a slump in construction, what exactly are the prospects for the commercial property sector? Is it time to batten down the hatches, or should we be shutting out the hysteria and forging on regardless.
Fairhurst Estates managing director, John Thornley, provides an insight into his own opinion and a clear message to ‘keep calm and carry on’.
“It’s difficult to gauge exactly what kind of health the commercial property sector is in at present, with so many conflicting reports and opinions flying around. On the glass-half-empty side, there were dire predictions in the immediate aftermath of Brexit of a 20% fall in commercial property prices, driven by panic in the investment market. Some property funds triggered contingency clauses which led to a ‘run’ on their resources by investors, and deals based on existing valuations falling through.
“We should not allow ourselves to believe media hype and fear mongering – if we allow ourselves to, we can talk ourselves into recession – not much fundamentally has changed since the Brexit vote and it will be years before anything does – no business can or should stand still so not a time to do nothing.”
Post Brexit Investment down
According to the latest RICS Commercial Property Market Survey, commercial property investment has fallen to its lowest level in two years during the second quarter of 2016.
John continues: “Naturally, a fall in available finance has a knock-on effect in the way people think about everything from valuations to lease renewals. Yet prior to the Brexit vote, De Montfort reported that end-of-year lending in the commercial property sector for 2015 had risen for the first time since 2008.
“It is always going to be difficult to quell investors’ jitters in times of uncertainty, especially when it comes to commercial property investment and property finance – putting your liquid assets into illiquid bricks and mortar requires a leap of faith fewer are prepared to make when the road gets rocky.
“News of further slowdown in the beleaguered construction industry won’t help, of course.
“But with the Bank of England’s decision to relax lending rules to release £150bn into the economy, perhaps the post-vote investment blues will turn out to be only a temporary blip.”
Rents hold firm
A much rosier picture emerges from commercial rents. Values across the UK sector increased by 1% in the second quarter of 2016, boosted significantly by an 8.9% increase in prime high street rentals in Central London. This followed rental values for prime office space increasing by 1.4% in the first quarter of 2016, repeating the figure for the last quarter of 2015 – the best figures recorded since the 2008 financial crash.
“Given the Brexit effect, for rental values nationwide to remain more or less stable is a certain indication that the market is far from being in dire straits.
“A degree of uncertainty will undoubtedly persist over the coming months, but whilst demand exists, so does hope for continued growth. That in turn will encourage investors back to the table. Hold onto your hats; it will definitely be an interesting ride.”