Foreign investors’ interest in UK commercial property is likely to increase this year, according to a new Royal Institution of Chartered Surveyors (RICS) report, as the weakness of the pound continues to lure investors despite uncertainties over Brexit.
‘The feedback we have received is consistent with a renewed appetite from overseas buyers for UK assets,’ said Simon Rubinsohn, RICS chief economist. ‘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.’
This year is therefore likely to see a continuation of the trend seen in 2016, when demand for commercial property rebounded soon after the referendum on EU membership. The UK has now seen two consecutive quarters of an increase in investment inquiries in the office sector and the expectation is of a rise in property values over the next 12 months.
Demand is up across all areas of the market, Rubinsohn said, but the survey highlighted the strength of the logistics sector: ‘Results clearly demonstrate the demand for large warehouses to support the development of the distribution industry as consumers increasingly go online to make their purchases,’ he noted.
However, regions outside the capital will benefit the most from renewed investor interest, while London will suffer from the expectation that many banks and companies will leave the City after Brexit. In Central London 32% of survey respondents said they had evidence of companies seeking to relocate to an EU country, the highest proportion in the country.
London has already underperformed the market in the last quarter of last year, with rents stagnating and some projects being put on hold, and the situation will not improve this year. Growth expectations for London commercial property values in 2017 are negative, according to the RICS survey, as the capital seems to be losing its safe-haven status in the wake of Brexit. Several banks in the last few days have confirmed that they will move thousands of jobs out of London.
Meanwhile Brexit is becoming more real: the UK parliament is expected to vote on Wednesday to allow the government to invoke Article 50 and start formal divorce negotiations with the EU, which should last two years.
