New investor demand in UK commercial property market rebounds post Brexit
Despite some concern surrounding potential relocation of companies based in the UK due to Brexit, demand from overseas buyers in the commercial property sector was up notably across all areas of the market in the fourth quarter of 2016.
Demand increased for a second straight quarter with the growth in enquiries gaining momentum but expectations for rental and capital growth moved back into negative territory in central London, according to the latest report from the Royal Institution of Chartered Surveyors (RICS).
Some 21% more respondents saw a rise in demand in the final quarter of the year, up from 9% more in the previous quarter and foreign investment also saw a rebound, with the weaker exchange rate likely to have been an important factor.
The survey also shows that 20% more respondents saw a rise in demand in foreign investment enquiries up from 7% more quarter on quarter and a significant difference from the -27% recorded in the second quarter of 2016.
At the same time, the supply of property for investment purposes fell in both the office and industrial sectors, but was broadly unchanged in the retail segment.
Overall, investment trends in the capital remain mixed. Industrial assets attracted a solid rise in investor interest during but overall enquiries were flat in the office sector and declined modestly in the retail segment.
However, foreign investment demand did in fact grow strongly across each sector of the capital, with the sharp decline in sterling since June’s referendum vote particularly prominent in enticing overseas demand.
At a national level, near term capital value expectations remained mildly positive across all sectors with 14% more respondents projecting values to rise rather than fall over the coming quarter.
Over the next 12 months respondents anticipate capital values will increase across the majority of sectors, led by the prime industrial market. In terms of the headline picture, 28% more respondents expect to see a rise rather than fall in capital value over the next 12 months.
Occupier demand is less buoyant than that from investors, with demand increasing only modestly at the all-sector level. However, the report points out that this was driven entirely by industrial property with demand flat in both office and retail sectors.
The lack of demand prompted landlords to increase the value of incentive packages on offer to prospective tenants in both these sectors. In the office sector, inducements have now risen in each of the last two quarters at the headline level, the first time this has happened since 2013, with 14% more respondents seeing a rise in the fourth quarter of 2016.