Colliers International predicts commercial property performance will remain stable despite Brexit uncertainties

Delay to withdrawal agreement vote spurs uncertainty as investors look for a ‘route map’ through the Brexit haze, according to 2019 predictions by global real estate advisor Colliers International. However, under the assumption of some form of a Brexit deal, the remainder of 2019 may prove to be business as usual for UK commercial property. With a number of transactions slipping into the new year, 2019 investment volumes may still breach £50 billion for a seventh successive year despite expected Q1 volatility.

Mark Charlton, Head of Research and Forecasting at Colliers International, added: “Investment agents report a shortage of quality stock, but we expect to see an increased range of real estate platform opportunities across logistics, student housing and PRS brought to market. Asian investors will also continue to seek large iconic and trophy assets when they become available, while instability in Europe may also provide another tier of safe-haven investors for London and key regional cities. The attraction of long and secure income drove investment in the alternatives sector to a new high in 2018 (33 per cent of trading volumes) and we predict that this will push nearer to 40 per cent in 2019.”

Tony Horrell, CEO UK & Ireland at Colliers International, commented: “The reality is that London is a global city and remains an attractive place for major institutional, private equity and sovereign wealth investors from both the UK and abroad. Elsewhere, the Northern Powerhouse and Midlands Engine continue to offer huge development potential, Grade A stock, across multiple markets – especially the industrial, logistics and office sectors – remains in high demand, which we expect to drive capital activity in the year ahead.”

Colliers’ top 5 predictions for the UK property market in 2019:

1. International investors continue to target London residential
Ashley Osborne, Head of UK Residential, Colliers International, said: “The new build residential market still suffers from a significant demand supply imbalance, particularly in inner London. Primarily, this is caused by the challenges in obtaining planning consents, together with developers finding it difficult to commit to new construction starts due to the uncertainty caused by Brexit. We anticipate these prevailing conditions, together with a weaker pound, to drive international investors back in to inner London in 2019, who see both an increase in rental values and longer term capital appreciation caused by the stagnation in new supply.”

2. UK funds to be net investor
“After a substantial number of disposals in 2016 and 2017, UK institutional funds bucked the trend to become net buyers of UK real estate in 2018, with a focus on industrial, regional offices and alternatives – and this looks likely to continue into 2019,” Charlton continued.  “Increased domestic competition with cross border investors will support prices, despite the expected devaluation of retail assets.”

3. The traditional office market continues to evolve 
“Given the lack of both investment stock and quality Grade A space in central London, as well as sustained occupier demand, which has proven Brexit resilient, landlords and developers are expected to embark on ‘quick and dirty’ refurbishments to reposition existing stock,” explained Mark Charlton. “We have therefore seen fewer deals in central London, but those completed were generally bigger transactions. This trend is likely to continue into 2019.”

4. Industrial continues to be the standout performer  
“With returns expected in mid-single digits, driven mostly by income returns, firm yields in the industrial and logistics sector are expected to balance out yield shifts in the retail market, aptly capturing investor sentiment for sectors that will continue to see rapid structural change,” added Charlton.

5. Volatility expected to remain in the short term 
GPD forecasts for 2019 range from 1.2 per cent to 2.2 per cent, reflecting the uncertainty surrounding the exact terms of the EU withdrawal agreement and whether or not we face an orderly departure.  ‘Sober’ forecasts indicate volatility is likely in the short term, while the pound could move in either direction. 

Concluding, Walter Boettcher, Chief Economist at Colliers International, said: “Evidence suggests that both the economy and property market have performed much better than expected since the EU referendum, with commercial property investment reaching a counter-cyclical peak in Q3 17 and sustained momentum visible though most of 2018.

“It might be said that many external factors remain unchanged for 2019 – mainly the extraordinary weight of global capital in search of modest, stable returns. So much so that, if any degree of certainty is achieved in Q1 19, then the remainder of 2019 may prove to be business as usual for UK commercial property.”