Investment in commercial property still going strong post Brexit-vote

The rally in investment demand in the UK commercial property market has continued after the EU referendum, according to the Royal Institution of Chartered Surveyors (RICS).

Despite concerns that companies may relocate once Britain leaves the European Union, the demand from overseas buyers across all areas of the market was up in the fourth quarter of 2016 due to the deterioration in the pound.

According to the RICS UK commercial market survey, demand was on the rise for a second consecutive quarter, 9% more than the previous quarter, with growth in enquiries gaining.

Foreign investment in particular was on the rise as the falling pound made investments more attractive, with 7% more enquiries compared to the previous period.

The supply of commercial property, however, fell for both office and industrial sectors while remaining unchanged for retail.

In the capital, investment trends remain mixed. Industrial assets attracted a “solid rise” in investor interest but overall enquires were flat in the office sector and declined marginally in the retail sector.

Foreign investor demand on the other hand grew strongly across each sector. Regardless of this, all sector capital value expectations fell into negative figures in London.

Nationwide near term capital value expectations remained mildly positive across all sectors with 28% more respondents projecting values to rise over the next year, led primarily by the industrial market.

Occupier demand increased only modestly across all sectors, driven entirely by industrial property. This lack of demand in office and retail has promoted landlords to increase the value of incentive packages to prospective tenants.

A net balance of 32% respondents said there was a decline in leasable space during the quarter. Industrial supply has fallen for 18 successive quarters pushing expectations of a rise in industrial rents in the next three months.

RICS Chief Economist Simon Rubinsohn said: “The results for the Q4 survey suggest that the commercial property market is continuing to attract investor interest despite ongoing concerns about pricing in the capital and the prospects for the economy more generally. Indeed, the feedback we have received is consistent with a renewed appetite from overseas buyers for UK assets.

“Meanwhile the results for the occupier market highlight the resilience of the economy in the wake of the vote to leave the EU but also clearly demonstrate the demand for large warehouses to support the development of the distribution industry as consumers increasing go online to make their purchases.”