What does 2017 have in store for the commercial property market?

After an eventful 2016, many will be hoping that 2017 will bring calmer waters. However, the ripple-effects of last year’s political decisions will continue to be felt across the world’s economies, with the potential for other events such as France’s Presidential election and Germany’s federal elections to unleash further tsunamis.

The motto then for 2017 is ‘expect the unexpected’, but this uncertainty does – conversely – bring with it some measure of certainty in the property investment markets. In the face of further upsets, core investors are likely to prize secure income streams above all, and will focus on the sectors where the fundamentals of supply and demand are insulated by macro economic and political events.

With that in mind, it’s time to take stock of what is likely to happen in the UK commercial property market over the next 12 months:

Investors will continue to favour the UK...

Global uncertainty, rising demands from pension funds and low bond yields mean that the global hunt for investments that deliver secure income continues. This will lead to strong demand for UK properties such as long-let City offices, index-linked warehouses or ‘alternative’ assets classes.

...particularly non-domestic investors

The weak pound makes the UK particularly attractive to investors based abroad, who are continually attracted by the income generated by long leases and strong rental covenants. Having become increasingly familiar with markets beyond London in the past two years, 2017-2021 is likely to see record levels of non-domestic investment in the UK’s regions.

Development activity will fall

Most lenders and borrowers will shy away from the risks involved in new projects. However, with supply of new office space running extremely low in many markets, opportunistic investors who do proceed with projects may well see their faith rewarded.

Tenants will continue to move

With no clear timetable for the UK’s exit from the EU, tenants will not be able to put off making decisions indefinitely. They may demand more flexibility when signing new leases, but occupiers will continue to seek space. Low supply and a very limited development pipeline in many regional cities are likely to keep their office markets buoyant.

Experience and convenience will define success on the high street

While some investors remain concerned about the impact of online retailing on bricks and mortar stores, most retailers have now fully adopted an omnichannel strategy. Those that haven’t will need to offer consumers either convenience or experience in order to continue to prosper.

Logistics will remain king

With availability at record lows, and demand unaffected by global issues, logistics looks likely to continue to out-perform the rest of the market due to its long and often indexed leases, as well as the landlord-friendly dynamics in the occupational market.

 

Further information

Read more: Key Themes in Real Estate

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