UK Commercial Property Demand Rises In Q3 2016

Fresh evidence indicates that demand for UK commercial property increased in the third quarter of 2016. Richard Carr comments.

Lucrative market

Commercial property is becoming increasingly critical to the British economy, now accounting for 10% of the country’s net wealth. Data from PIA (Property Industry Alliance) indicates that the combined value of the UK’s commercial property stock rose by 11% from 2014 to 2015, to reach £871bn.

British commercial property has remained strong in 2016. For example, demand for Central London office space dipped in July, following Brexit. But it picked up in September, almost matching June demand levels, indicating that nothing can keep the UK commercial real estate market down for long. A new report from the Royal Institute of Chartered Surveyors (Rics) recently confirmed this idea.

Making progress  

The International Business Times reports that business demand for UK commercial property climbed by 12%, at an all sector level, during the third quarter of 2016. It stood at zero the quarter before. Demand was driven by the industrial market, with 27% more Rics members reporting an improvement during Q3, However, according to the body, demand for retail and office real estate remained flat.

Rics also reported improvements in terms of UK commercial property rents and investments. The net balance of members reporting rent improvements increased from -7% to +13% between the quarters. When asked if they have seen improvements in commercial property investment, the net balance of those saying yes rose from -16% in Q2 to +9% in Q3, with progress driven by the industrial sector.

Dispelling illusions

In its research, Rics noted that progress was uneven across the UK. In Q3, 24% more members cited a fall in demand for Scottish commercial property, marking the sharpest decline in the nation. Demand also fell in London, the UK’s most valuable commercial property market, for the second consecutive quarter. Some observers have attributed this to Brexit, but this does not appear to be the case.

Rics asked its members whether after Brexit, they have seen evidence suggesting that firms wish to relocate from the UK. The vast majority (86%) said no. Commenting, Rics said: “Foreign purchasers look to be capitalising on the opportunity to buy prime assets across the capital given the significant discount provided by the weak pound, along with price reductions seen in July and August.” According to Savills estate agents, foreign buyers are snapping up London commercial property post-Brexit.

Strong belief

With Rics’ latest report, we see the resilience of the UK’s commercial property market. After Brexit, the value of the Pound dropped to its lowest level since the 1980s. Rather than damaging the market, this phenomenon has revitalised it, incentivising foreign investors to buy UK commercial real estate cheaply while they can. In order to pursue this action, they must believe that UK commercial property has the ability to deliver strong returns later, which is why demand may never stay down for long.