Investors buy UK offices & warehouses

JLL predicts that UK commercial property investments will rise by 9.3% this year. Investment opportunities are expected in warehouses, logistics property and offices. Retail properties, however, are performing poorly

UK commercial property investment transactions could surge to £55 billion ($71 bn) in 2020, up 9.3% from levels in 2019, estimates real estate and investment firm, JLL. The company calculates that commercial investment in 2019 was £50.3 billion, well down from £63.7 billion in 2018 and £65.1 billion in 2017. Between 2010 and 2019, UK property investment deals averaged £51.1 billion.

Opportunities can be found in warehouses and other logistics properties, but the retail sector is weak.

Much will depend on economic growth and trade talks between the UK, the European Union (EU) and other nations.

York, a northern city experiencing property revival (Source- Brittanica )

Regions that stand to benefit

Property agents and consultants contend that there will be greater demand for commercial space in Birmingham, Manchester, Leeds, Sheffield, Leicester, York, Newcastle, Liverpool, Cardiff.

The key reason is that Prime Minister Boris Johnson’s Conservative government aims to redevelop depressed northern England, Midlands and Wales. Several former Labour constituencies there switched votes to the Tories.

Infrastructure promises and ideas

As a result, Mr Johnson promises to boost funding and improve the National Health Service, schools, railways and other infrastructure. The intention is to pursue regional Keynesian “multiplier” policies to boost income, output and employment.

He also aims to boost broadband. To speed up this development he has chosen Huawei as a 5G provider. This decision was made despite criticism from Washington and several Conservative MPs. I

Ideas from a physics professor

The UK property market could benefit from the ideas of Richard Jones, professor of physics for research and innovation at the University of Sheffield. Dominic Cummings, Mr Johnson ‘s chief adviser has been promoting Prof Jones’ ideas to boost productivity and innovation in these regions. The primary mechanism will be the establishment of new centres of research such as science parks. They would create clusters of innovation and skills to raise productivity and attract businesses.

Foreign investors are buying UK commercial property

Asian, Middle Eastern and other investors have taken advantage of the low pound and lower property prices.

“2020 will be the year when we will see mass uptake of property investment,” said Jon Neale, head of JLL’s UK research, adding that the Conservative election victory has boosted confidence.

The world economy is slowing down but the UK’s relatively high property yields are attractive, Mr Neale maintains.

Urban logistics a strong performer

Urban logistics will continue to be a strong property performer, according to JLL.

Segro, a £12 billion real estate investment trust, for example, has done well specialising in UK and Continental Europe’s warehouses and industrial properties. It is developing and renting “big-box” warehouses to store, process and distribute goods. It has been buying urban warehouses that are within easy reach of cities and business districts.
Innovative real estate solutions are needed to cope with growing e-commerce, Segro maintains. It adds that it is becoming more challenging and complex to deliver goods to consumers in London and other cities.

Offices are in short supply despite Brexit

Office space in Central London has fallen to its lowest level since the 2016 referendum, says Cushman & Wakefield. The commercial property agents estimate that vacant office space was only 4.5% in the second quarter 2019 . This compares with 5% in 2018. Rents have thus risen in central and greater London. Examples include Clerkenwell in the City of London and Shoreditch on its outskirts. Rents rose by 8.2% and 6% respectively to more than £70 a square foot.

Office supplies are unlikely to keep pace with demand, so rents are likely to rise further, Cushman maintains.

© Copyright Neil Behrmann (First published in The Business Times Singapore)  

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