Winter 2018 Barometer – Fair
Following a relatively slow start to the year, the commercial property investment market in 2018 appears to be carrying on where it left off in 2017. With few signs of investors exercising caution, the weight of private equity is still resulting in competitive demand for good quality assets.
Because this appetite to invest does not appear to be impacted (yet) by global, political and economic events, and we forecast that this trend will continue well 2018, the outlook for the UK commercial property investment market over the next three to six months has changed to Fair.
2017 finished with a very strong performance across all sectors, and according to the CBRE UK Monthly Index for December 2017, the last month of the year provided the strongest monthly commercial all property return in three years at 1.4% for the month.
All property capital value growth stood at 1% in December, as rental values increased 0.2% and yields sharpened by three basis points.
As a consequence of this strong conclusion to the year, annual total returns for 2017 stand at 11.8% (all property), the highest since 2014 and the second best annual performance in 18 years.
As has been the trend throughout 2017, the industrial sector remained the star performer with total returns in 2017 of 21%, driven by a December return of 2.7%, comprising 2.3% capital value growth and 0.7% rental value growth.
The total returns from the office sector (9.8%) and the retail sector (8.6%) were comparatively modest but still above the long-term average.
January 2018 has already witnessed examples of strong demand for commercial property investments, particularly within the industrial sector, future performance of the investment market will be closely aligned with occupier demand and rental value growth.
In this respect, although there remains a question mark over consumer confidence, with wage growth failing to keep up with inflation, and therefore having a negative impact on consumer spending, there are a number of reports of strong economic growth forecast in 2018 reflecting strong performance in the United States, China and Europe which all show increased activity.
The fact that the UK economy will benefit from the strong global economic performance, may also cushion the potential impact of Brexit. Investors appear to be generally welcoming of the economic outlook for 2018 and consequently we anticipate continued strong performance in the commercial property investment market throughout the year.
The Blue Marble Barometer is a quarterly forecast of the UK commercial property investment market based on current data and the direct market experience of Blue Marble Asset Management in acquiring, disposing of, and managing commercial and mixed use properties across the UK on behalf of its clients.
The next Barometer will be published in Spring 2018.
Based in Birmingham, Blue Marble Asset Management is a real estate asset management specialist which presently has more than £100 million of property assets under management. It works for a select range of clients including investment businesses, high net worth individuals, trusts and family offices. Its business is based on taking a holistic view of each of its property investments.