Commercial property is under pressure
London commercial property is vital to the economy. But if you read the property media then it seems Brexit is already impacting profoundly on the economy. Property Week’s headlines for 5th July 2016 read like a role call of despair:
- Real Estate stocks and house builders take market pummeling!
- St Modwen warns on Brexit uncertainty
- Standard Life suspends trading in UK fund
- Aviva latest to suspend trading in its property fund.
All these things were happening within a five hour reporting window on the 5th July 2016.
A ray of sunshine in London’s stormy financial skies
CIVIC centre redevelopment Old Kent Road – Concept image proposed church facilities
However, although the dominant hegemony is doom and gloom there are a few rays of sunshine in amongst the stormy skies. London has appeared in the Top 3 Greenest cities awards. I wrote about this on Linkedin Pulse in an attempt to spread some good news!
Also Persimmon, the house builder has been allaying fears when it issued a trading update. Persimmon demonstrated that first half trading had been very buoyant. They also stated that low borrowing, good selling prices and great labour markets has been promoting renewed confidence. Their main concern was inefficiencies in local planning within the overall planning system. TA Property wishes them all the very best in their 100 new projects they should be starting in the second half of the year. We understand their frustrations with planning as TA Property Planning department is always heavily involved in the vagaries of UK planning law.
Are we surprised?
Even as far back as April the Daily Telegraph reported that London commercial property was headed for a fall. It appears that even though shares in REITS (or real estate investment trusts) has been high since 2009 they may have reached a peak. Therefore ROI is going to be more difficult.
The thing is there are two things that drive REITs. One is rental income. As we know that has been rising steadily for ages. The second one is overseas investment. It acts as a great treasure chest for wealth. That in itself has driven up prices. Yet we have been seeing the oil dollar drying up over the past few months. Back in February investors took out money faster that had been previously recorded since 2008.
Bearing in mind Brexit happened just two weeks ago we are still seeing where the dominoes are going to fall. By lunchtime on the 5th July Mark Carney, Governor of the Bank of England was stating the UK was ‘ entering a period of uncertainty’. His advice was to be careful regarding borrowing. That’s never welcome advice to anyone’s ears even if interest rates are going to be slashed next week.
Therefore with respect to commercial property in London the landscape is very uncertain. After all, you can sell shares whenever you want and money is immediately in your bank account but can’t sell a supermarket or office block that easily. Now two funds are frozen as people are obviously trying to take money out sharpish. There is 8 billion invested in commercial property so it’s a sector under particular pressure.
However, we have found that communities and organisations are still looking for D1 properties. Maybe investment might be curtailed by happenings in the UK. Yet churches still need to be found for congregations and there are still businesses looking to expand and develop. With sterling rates looking favourable to exporters, then who knows what demand there might be on warehouses etc. We’ll keep you posted.
Meanwhile if you would like to talk to us about a new commercial or D1 property for your needs please contact us and we’ll help you find the commercial property you need.