Property Market Review
Our monthly property market review is intended to provide background to recent developments in property markets, as well as to give an indication of how some key issues could impact in the future.
Market behaviour “little changed” as Brexit headwinds remain
The UK Commercial Property Market Survey for Q2, conducted by the Royal Institution of Chartered Surveyors, reports that demand is still solid across the industrial sector and that further growth in capital values is expected across both the prime industrial and office sectors over the coming year.
The availability of vacant industrial space continued to decline in Q2, while availability of office space edged higher for a third consecutive report. Unsurprisingly, the most significant rise in availability was attributed to the retail sector. In response, both retail and office landlords have raised the value of incentive packages offered to potential tenants.
Tarrant Parsons, RICS Economist, commented on the survey results: “The overall picture remains little changed across the UK Commercial Property Market in Q2, with the disparity between a strong backdrop for the industrial sector and weakness in retail still very evident. While expectations continue to point to solid rental and capital value growth in the former, further declines are expected in the latter. Brexit uncertainty also remains a notable headwind, causing caution across both occupiers and investors while they await clarity on the UK’s future trading relationship with the EU.”
Investors pursuing core assets in the City of London
The recently released Savills City Investment Watch, reported that £1.017bn was transacted across nine deals in the Square Mile during July. This represents the second highest monthly turnover this year, taking overall investment for 2019 to just over £4bn. Despite this increase in transactions, volumes are lower, with the total number of deals this year so far totalling 59, over a third (35%) down on the five-year average of 91 deals. Investment volumes have been impacted by a lack of core £100m+ transactions.
So far this year, investors from the US have accounted for the largest share of commercial property investment in the City, representing 37% of total investment. American investors have purchased five buildings for £1.5bn. UK investors have acquired 34 buildings, totalling £1.27bn (31% of total volume). In July, Asian investors spent around £480m, this represents more than double their spend for the rest of 2019 combined. It is expected that this trend will continue whilst sterling weakness persists.
Edinburgh office investment surges
According to Knight Frank, investment in Edinburgh offices during the first half of 2019 has outstripped 2018’s annual total, driven by some key deals in Q2. Nearly £310m was invested in the city’s offices in H1, beating 2018’s total of £284m.
Head of Scotland Commercial at Knight Frank, Alasdair Steele, commented: “It’s been a great start to the year in Edinburgh, with a number of large transactions for major assets. That we had two nine-figure deals conclude against an uncertain political and macro-economic backdrop is testament to the strength and diversity of demand for prime commercial property in the city. There is an almost insatiable appetite among investors for secure long-dated income and prime offices. Despite Brexit, Scotland is seen as providing stability at a competitive price.”
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