The UK commercial property market hit all-time highs in 2015, and while some are touting that the sector may have peaked, many others think that British property prices will remain high for some time yet.
London, especially, has seen growth in the commercial market sector over the last few years which has not been rivalled elsewhere across the globe. Many look to the UK’s capital city as the precursor to movement in other major European cities, as the cycle there always tends to be one step ahead of its rivals.
What they are seeing at present is high pricing, and with the large amount of capital that investors have to plunge into real estate seemingly never ending, analysts are predicting that more is still to come in future years. This is despite others claiming that the current cycle has hit its peak.
Lessons have been learnt
With the global financial crisis still fresh in the memory, the commercial property industry in the UK appears to have taken on board a number of lessons from the dark days of 2007 and 2008. The assets that are out there are currently a lot less leveraged and there is still plenty of encouraging activity with regard to new developments being announced, despite being so deep into the current cycle. All of this means that the current market is a lot more stable than it was back when the recession first hit.
What has driven the upsurge in pricing?
There is little doubt in anyone’s mind that the current pricing levels are down to one thing – foreign investment. As with other major cities across the world such as New York, Hong Kong and Tokyo, outside investment has played a huge part in bringing the market to where it is today.
That being said, many analysts are now forecasting a spell of levelling out across the investment market as the foreign money begins to look further afield for opportunities. Across the capital, overseas investment has reached around 70 per cent since the crisis hit, and 32 per cent across the rest of the country. It is the second figure that is significant, however, as this shows a dramatic increase from 20 per cent whereas the London figure has somewhat plateaued.
Asian investment set to remain strong, however
Concern may have been aired with regard to the current state of the Chinese economy, but few predict a significant drop off in UK real estate investment despite the turmoil that has been seen in markets there over the last six months or so. Companies such as Dalian Wanda will continue to plough money into the UK simply because it offers them a diversification that isn’t available at home. Yields in China are poor, so UK commercial property will remain the number one target for such companies.
Rate rises are cause for some concern
One area that could affect the market’s current standing is a change in interest rates. Property sectors, both commercial and residential, can react adversely to rate rises, and word is that the US Federal Reserve is due to raise interest rates again in the not too distant future.
In the UK, however, the common belief is that there will be no real interest rate hikes until as late as 2017. Nevertheless, the nature of the rises will be the important factor to watch out for. While the rate rises will be closely monitored, it is worth bearing in mind that should the rise in interest rates be slow and steady as expected, there is likely to be little impact to pricing across the first couple of years.
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