Commercial Property in the UK Set to Continue Upwards Growth In 2016
As far as investors in the commercial property sector in the United Kingdom are concerned, 2016 is expected to provide them with strong returns as it is anticipated that the investment volumes would be on par with the record levels hit in the previous year.
CBRE, a global real estate advisor, said in a forecast report that the total investment in the commercial properties sector in the country would be to the tune of approximately GBP 70 billion in the current year. CBRE’s forecast report also points out that the total returns would be in the range of an attractive 10.1 percent. Additionally, the forecast predicts that the returns would remain positive up until 2020 though it might start to decline after this fiscal year.
According to the CBRE report, as the growth in capital value of properties starts to slow down, the key factor that drives returns on investments would be the income received from properties. Further, a stronger economy and a growth in e-commerce business suggest to the fact that the total returns from commercial property investments is likely be in the range of 9.5 percent per annum, on average, in the next five years to 2020.
CBRE expects the retail property sector also to do well, with returns in the range of 7 percent, supported by a recovery in disposable incomes with consumers. However, the returns from the office market segment would be restricted to about 7.4 percent per annum, on average, till 2020 as the recovery in supply in this sector continues to improve.
Another aspect pointed out by the CBRE report is that the key factor that has been driving London’s central market is foreign investment. Overseas investments once again rose during the period between 2012 and 2013, but levelled off to around 70 percent of all the investment in central London during the period between 2014 and 2015.
However, foreign investment has never been significant as far as property markets outside central London are concerned. Historically, it has been only in the range of 20 percent of all acquisitions, but of late, there has been a small increase. In 2015, as much as 32 percent of outside London transactions (in terms of value) attracted buyers from as many as 31 different countries, indicating a significant increase in investor diversity.
According to CBRE, the source of origin of foreign capital would also experience some amount of changes in the near future. Investment inflows from Asian countries were more than the 10-year average last year, with countries such as Taiwan and Singapore making significant contributions.
However, the investments from the US and Europe have been a little less during the previous year. This could be attributed to the recovery in the European market and promise of relatively better values compared to the UK property sector. As far as investment from the Middle East is concerned, it is increasingly from private rather than sovereign investors and this could be attributed to the prevailing low oil prices.
After witnessing strong capital and investment growth for several years, it is expected that the commercial property market would provide steadier as well as sustainable returns in the year 2016. Miles Gibson, who heads UK research at CBRE, said that the economy of the United Kingdom continues to be strong and it contributes to a growth in rental value, providing more returns to investors than it has done in the past few years.
As London continues to be the go-to place for property investments, foreign investments would not only continue to be strong, but would also be more diversified in nature. However, Mr. Gibson added that CBRE is of the opinion that the industrial and property markets in the South East area and other big cities in the UK would experience increased interest and would, therefore, put up a better performance. In addition, the retail sector would experience a recovery that has been awaited for a long time now, he noted.
Ciaran Bird, managing director at CBRE UK, said that the property sector would continue to be the leading contributor to the UK’s economy and in 2016, investors would enjoy one more year of strong returns. He added that clients would be more agile as well as innovative as far as their operations are concerned, as they would be looking to capitalise on opportunities.
FJP Investment is a team of investment specialists sourcing a wide range of investment opportunities both in the UK and overseas, including commercial property investments.
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