This new year, there is one question on the lips of business men and women around the UK: “Is now the best time to purchase commercial property?” Thus, commercial property experts, Savoystewart.co.uk, have analysed how the market faired in 2017, and whether 2018 is the ‘peak time’ to buy.
The latest Property Data Report shows that since 2000, the value of the UK’s commercial property stock has grown, considerably, at an average of 3% each year – surprisingly, more than RPI inflation, which grows at an average rate of 2.8%.
Whilst exploring the report, Savoy Stewart found that the commercial property market in the UK in 2016 was valued at a staggering £883 billion, representing 10% of the UK’s net wealth. Investors now own £486 billion worth of commercial property in the UK; with overseas investors owning 29%.
In central London alone, around £2.4 billion was invested in commercial property, resulting in the total turnover for the end of July reaching a substantial £11.5 billion – a 24% increase on the same point a year earlier, in 2016.
July was the strongest month recorded for the City of London since March 2007, owing to the sale of the “Walkie Talkie” building – the UK’s largest single office building deal – which accounted for a staggering 61% of turnover.
Is now the best time to purchase commercial property?
2017 was a much stronger year than many ever 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 rise, despite the impact 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.
A substantial 3.8 million square feet of office space in central London was under offer and was due to close by the end of the year – and it is predicted to be the strongest final quarter since 2014. Office take-up in the West End alone reached 1.65 million square feet.
Trends in 2018
The 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. As a result, activity may be subdued, but it doesn’t
mean investment will stop any time soon, as investment volumes in the UK commercial property market, this year, are expected to total around £55 billion, per a report by JLL.
Savoy Stewart considered Savills ‘Sector Outlook’ and summarised the six main trends for commercial property in 2018:
- Non-domestic demand for UK commercial property to remain strong; Due to the weakening of the pound and commercial property yields looking high in comparison to prime European and Asian markets.
- Now is the best time to add value, and for opportunistic investors; Less competition and falling prices means now is the best opportunity to value-add and for opportunistic investors looking to change short-term income into long-term.
- Real earnings growth will improve for the retail market; In 2017, a perfect storm of negativity hit retail, but this year will better news. Watch out for good buys in some segments of the commercial property market – don’t just buy because it’s cheap.
- Brexit: It will become clearer how much, where and when the risks will be. London’s office market shrugged off the worst of the pre-Brexit negativity last year; 2018 will see more balance.
- 2018 will be the year of ‘alternatives’; The pace of recovery will be dictated predominantly by Brexit; investors this year will be exploring new opportunities in the market.
- New-tech tools, such as AI, will emerge; Wellness and staff satisfaction will continue to be important for employers, but some businesses will start to look at offsetting the costs of delivering wellness by using artificial intelligence.
Managing Director of Savoystewart.co.uk, Darren Best, discusses his view on commercial property investment in 2018: “As the figures show, despite the uncertainty around Brexit, London is still a pre-eminent city and performing better than Europe in some sectors. The research suggests that now is the best time to purchase commercial property in the UK, now that business confidence is more stable than many expected, which speaks volumes.”
He added: “The performance of the market, last year, surprised many of us. Occupiers are continuing to commit to London commercial property to satisfy their needs, and with the increase in foreign investment in UK commercial property over the last decade and overseas investors now owning 29% of UK commercial properties, it is safe to say 2018 isn’t going to be all doom and gloom – there will be scope for optimism too.”