COMMERCIAL PROPERTY MARKET OVERVIEW
This year began with confidence after the 2019 General Election. However, London saw a significant slowing of investment activity in 2019, with volumes falling from £27.2 billion in 2018 to £19.6 billion in 2019. A decline of approximately 27% on the 10 year average of £22.5 billion. The General Election at the turn of the year has without doubt helped bring to an end the uncertainty that has been a shadow over the UK economy since the Brexit vote of almost four years ago.
The Royal Institution of Chartered Surveyors (RICS) has reported refreshed optimism in the UK housing market for the first quarter of 2020. Increased sales activity in London and the South East is now rolling out to a number of other areas of the country. This optimism is also reflected in the commercial market, with agents seeing greater activity, although some weaknesses remain. UK retail sales disappointed through 2019, which was also seen in quarter one of 2020. The British Retail Consortium reports that annual sales in 2019 fell for the first time in 25 years, while retail company failures continued through 2019, with over 2,000 stores closing. These failures included a number of household names such as Select, Mothercare and Debenhams. Other similar sized companies are showing signs of financial weakness and Company Voluntary Arrangements (CVAs) are still very much part of the retail landscape. In the wake of this poor outlook, the value of retail properties are likely to weaken during 2020, with retail trading conditions remaining difficult. It is likely that more retail properties will be converted to other uses (such as residential) as consumer trends and shopping habits continue to evolve.
The office market in London and the South East remains active, with office take up in 2019 exceeding the 10 year average for a third successive year. Colliers International reported that pre-lets accounted for at least 25% of demand in 2019, which is a 10 year high. The vacancy rates for offices in London for 2019 was 4.8%, down from the record low of 5.1% in 2018. It is likely that with good demand, further rental growth will be seen this year.
The industrial and logistics sector are projected to remain resilient during 2020, with market fundamentals similar to 2019. Logistics are set to continue in an upward direction as credit usage and the digital economy see further growth. Overall supply of light industrial space stabilised in 2019, but as with logistics, it is likely that demand will remain strong. There is also a belief that with high levels of uptake of available space, demand could lead to the record level of development seen in 2018 of 34.6 million sq. ft. being exceeded.
There are nevertheless head winds for the UK economy to address. These include political uncertainty, climate change and the recent outbreak of Coronavirus, all of which are difficult to predict, but could have a significant impact on the UK economy and the property sector. These factors make the market difficult to assess, although there is still optimism for 2020, it is more muted than the confidence we were reporting in January.
London’s Surveyors and Valuers Limited believe that when the immediate uncertainties are overcome, the property market will attract investors and the sector will see increased strength. Nevertheless the projections made in December 2019 and January 2020 for the economy now look optimistic, with GDP likely to rise at a rate below 1% this year.