Statistical evidence has indicated to Simon Morris that UK commercial property investment is set to break records by the end of 2015.
Investors are feeling pretty confident about the prospects of the UK’s commercial property sector. This was highlighted by the latest UK Consensus Forecasts from real estate advisor Investment Property Forum (IPF); forward-looking research involving over 25 leading fund managers and advisors.
This study found that investor confidence in the UK’s commercial property sector increased throughout August 2015. The survey showed that investors were really confident about city office returns – which they expect to hit 19.9% this year, and nationwide office returns – which they believe will reach 17.9%.
A new report from property consultancy Carter Jonas has indicated that this confidence will drive UK commercial property investment to over £70 billion by the close of 2015. Property Wire reported that Carter Jonas’ analysis of PropertyData figures suggests that nearly £50 billion of transactions were completed in the first three quarters of this year, a 17% rise from the same three quarters of 2014.
The report estimated that a healthy pipeline of commercial property investment deals should drive transactions past £20 billion in the final quarter of 2015, as they did in 2013 and 2014. Carter Jonas said that much of the rise in commercial property investment can be attributed to overseas investors. These investors accounted for 15% of transactions 15 years ago, but they should comprise more than 50% of UK commercial property investment by the end of this year.
Looking to 2016
Darren Yates, head of research at Carter Jonas, commented on these figures. He said that “with the market edging towards its natural peak in the cycle, a pause for breath seems likely in 2016.” Yates went on to note, “investors will need to factor in headwinds such as the anticipated interest rate rise and the EU referendum may start to play on investors’ minds.”
Mike Prosser, partner in the investment team at Carter Jonas, added: “Whilst we will continue to see further yield compression in some parts of the market, this could taper off in the next three to six months. However, when viewed against current bond rates, property yields still offer good value and, with rental growth coming through, there is still an incentive to invest in UK commercial property.”
This evidence seems to indicate that UK commercial property is performing well at the moment, but investors should be cautious. A number of external factors such as the EU referendum could impact the sector next year, so investors should carefully consider these elements before they devote capital to UK commercial property in 2016.