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  • Commercial Property

    Shawbrook anticipates "post-Brexit binge"



    Pent up demand could see a boost to the commercial property market post-Brexit, according to new analysis of the commercial property market from Shawbrook Bank.

    The 'UK Commercial Property Market Report'1, produced by Shawbrook Bank and compiled by the Centre for Economics and Business Research (CEBR) assesses the state of the current commercial property market, exploring the various sub-sectors comprising the market, historic and future trends, and the impact of the changing political landscape.

    The commercial investment market remains compelling despite Brexit uncertainty

    The Shawbrook report shows that uncertainty over Brexit has weighed on the commercial property sector in recent quarters, as owners and tenants take stock. But despite activity slowing, the market remains a profitable place to invest and deliver a solid income over the medium to long term. Over the past 18 years, the commercial property market has returned 308% to investors compared to 209% for the FTSE100, and yields have remained stable; average yields across the commercial property sector have stood nearly unchanged at 5% since 2015.

    Rob Lankey, Director of Commercial Property Investment, Shawbrook comments: “Although uncertainty is present, the commercial property market remains fundamentally resilient in terms of both yield and capital growth. Despite investors taking a wait-and-see approach, we believe many are stockpiling cash and simply postponing activity until we have a definitive Brexit outcome.

    “With the long-term view and fundamentals of the commercial property market still compelling, I would go as far to say that we will see a ‘post-Brexit binge’ from professional investors looking to utilise the cash they have stockpiled to take advantage of investment opportunities in the post Brexit landscape. However, not every commercial property investment will automatically generate great returns. Doing your homework on potential investments is more important than ever. There are good and bad opportunities within all sectors.”

    Factories, warehouses and other industrial properties have shown the most resilience

    Underpinning the resilience of the commercial property market are factories, warehouses and other industrial properties, which over the past few years have become the best performing sector over one, three and five years, with yields in line with the commercial sector more broadly2. Stockpiling activity and strong demand for warehouses from online retailers have helped the sector to withstand economic headwinds to date, however, the unwinding of the stockpiling effect poses a risk to this asset class as does a no-deal Brexit, which would severely harm many of the manufacturers that are the current tenants of the industrial assets.

    Table 1: capital value growth across industrial, retail and office properties

    Capital value growth

    Cumulative capital value growth

    Industrial

    Retail

    Office

    One year: Jan 2018- Jan 2019

    12%

    -8%

    3%

    Three years: Jan 2016- Jan 2019

    31%

    -11%

    5%

    Five years: Jan 2014- Jan 2019

    71%

    1%

    37%

    Table 2: (Initial) yields across industrial, retail and office properties

    (Initial) Yields

    Industrial

    Retail

    Office

    Jan-19

    4.6%

    5.7%

    4.5%

    Jan-16

    5.4%

    5.3%

    4.0%

    Jan-14

    6.6%

    5.7%

    5.1%

    Growing popularity of serviced offices

    In the office sector, demand has been strong following the recovery from the last recession. The increasing importance of professional and business services for the UK’s economy provides a strong macroeconomic background for assets in this category and growing popularity of serviced offices is becoming particularly important as new business start-ups and smaller businesses struggle to keep up with rising rents in cities such as London and Manchester and as a result are looking for more flexible spaces.

    Retail needs to adapt to remain relevant

    For retail properties, a number of factors have come together to create a ‘perfect storm’. On the back of a decade of very low real wage growth, consumers have turned away from the high street and increasingly do their shopping online. Recent research on high streets in Great Britain by the ONS shows that over half (56%) of addresses on high streets are now residential.

    Rob Lankey adds: “The challenges faced by retail won’t be solved by a shift to residential, but the trend will be a significant boost to opportunities for property owners. Irrespective of broad capital value trends, retail property can continue to provide strong rental returns for landlords where the combination of tenant and property location are meeting modern consumer demand. For investors of mixed-use space to realise the full benefits that can be had, there will have to be a level of collaboration in the property sector moving forward. Another beneficiary of the declining high street will be for shared office spaces, such as WeWork which would likely use former retail premises in UK town and city centres”.

    Shawbrook Head of Products & Markets, Daryl Norkett adds: 
    “Broadly, if we look at the sub-sectors that are performing today and consider the analysis brought to life in this research, there is opportunity for experienced investors to grow and diversify their portfolios. However, it is important to highlight that the current market requires a certain level of expertise, knowledge, understanding and commitment of time in order to make the right property investment decisions but if you do your homework, it can be a great investment.”

    *Shawbrook Bank is a commercial partner of Property Tribes.

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    Good news is good and while bad is clearly bad, it is better than uncertainty. So UK related assets should lose their brexit uncertainty discount and while probably outperform over the near term following the final brexit move. Outperforms means go up more but also can mean go down less than others.

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    I'm still pissed off with Shawbrook for changing their lending rules when i was half way through a re-mortgage a few years ago.

    It cost me £1500 in lost broker and surveyor fees, which both the broker and Shawbrook refused to reimburse.

    Am I still bitter and twisted about it?   Absolutely.


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