What’s happening to the UK’s commercial property market?

Written by: Cathal Leonard
June 21, 2016

The UK is going through an uncertain time at the moment. For the past three years, the commercial property market in London, and across the UK as a whole, has been booming. Property investments have been thriving, with high demand and a shortage of supply, but it looks like the market could finally be heading for a fall. With the impending EU referendum (and Brexit looking increasingly likely) along with Trump potentially the favourite to win in the US, what’s happening to the property market here in the UK and globally?

Supply outstripping demand

The commercial property market moves in cycles, and although increase in demand for UK commercial property has driven prices up, there are definite signs the market is now in deep trouble. Collapsing oil prices are partly to blame for falling property demand, and it’s ironic that as demand falls, a huge boost to supply is on the horizon. The Croydon Vision regeneration programme is set to be completed in London by 2020 – but what will happen to it? Unemployment levels are rising, the financial services sector has been hit hard and even growth in the once buoyant technology sector is slowing down, which could all impact the market.

Could Brexit break us?

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It’s still not clear which way the vote will go on 23rd June’s referendum, but with Brexit increasingly likely, uncertainty in the market is definitely impacting commercial property investment across the UK. Exiting the EU is most definitely bad news for property prices across the country, and with Labour candidate Sadiq Khan planning to curb foreign investment if he is elected in London, the property market in the capital could suffer as a result.

What’s happening globally?

Things aren’t much better across the globe either. The first quarter of 2016 saw office property sales slowdown, compared to the first quarter last year. Global activity totalled just USD $133 billion – that’s 14% lower than in 2015, and it’s meant the weakest start to a year since 2013. Volumes across the Americas have fallen by 16% to $61 billion, whilst Singapore reported one of its weakest quarters yet, with figures of just under $700 million reported. It might come as a surprise then that despite the political unrest caused by Brexit, figures in the EU are still fairly stable, falling by just 15% to $48 billion. Any uncertainty will generally result in a slowdown of market activity, but the EU seems to be holding its own, for now.

What does this mean for investors?

Commercial property investors in the UK were unhappy to learn their holdings were worth around 5% less than they expected, earlier this month. It wasn’t that their assets had fallen in value, but that a change in unit pricing had been implemented by the fund management groups in charge. But it’s not all bad news for investors. The past 3 years has seen the market thriving, with high demand. Inflating prices have allowed investors to make huge returns on their investment, and although this is now slowing, we knew this would happen from 2016. The market in London relies more heavily on investors from overseas, who may be more concerned about Brexit – this means these funds are still enjoying inflows. The silver lining is that it’s a great time for investors to buy, as they’ll enjoy more favourable returns.

Although it looks likely that the market could continue to falter or see slow growth this year – as predicted prior to the start of 2016 – who’s to say for sure what will happen after the EU referendum, and what the impact could be if Donald Trump wins in the US.

Image Credit: Wikimedia