London industrial assets and regional offices are likely to see the strongest rental growth in the event of a no-deal Brexit, according to new analysis from international real estate advisor Savills.
Savills suggests, at the top of the pack is London industrial property with a forecast 2020 rental growth of 1.1%, closely followed by ‘rest of UK offices’ (i.e. those outside London and the south east) at 1%. Savills says this is in line with data on vacancy rates, which shows that London industrials have a vacancy rate of just 2.4% and that the regional office markets are also under-supplied with a vacancy rate of 7.8%. Savills analysis is based on a scenario that shows that seven segments of the MSCI index will achieve positive rental growth in 2020. It takes into account the latest OBR “no deal” stress test which shows a GDP fall of 1.4%, whereas Oxford Economics are slightly more positive, Savills has assumed 0% growth for GDP, consumer spending and employment.
James Gulliford, joint head of UK investment at Savills, comments: “With most sectors and geographies forecast to show minimal or indeed negative capital growth over the next five years, opportunistic investors are still keen to access markets where rental growth remains a possibility to drive total returns. Looking at baseline forecasts, then factoring in a likely economic shock from a no-deal Brexit, London industrials and regional offices are the clear winners. However, it should be noted that the duration of such a shock is predicted to last less than the five consecutive quarters of GDP decline during the 2008/9 financial crisis.”
Kevin Mofid, head of industrial research at Savills, adds: “Even in the event of a no deal downturn, investors should be buoyed by the fact that rents for industrial real estate will continue to grow. London in particular continues to have historically low vacancy rates and occupier demand continues to rise. As online retail continues to grow the need to have more warehousing located near population centres will remain.”