Commercial property market forecast to grow in 2016

Paul Heather, Director of commercial property agents Charles Darrow

Paul Heather, Director of Newton Abbot based commercial property agents Charles Darrow looks at the year ahead:

The relentless demand for commercial property continues and forecasts suggest the sector is poised for another prosperous year.

On the back of a fruitful 2015 in the south west, the early signs are promising. With prices competitive in the region, there is value in the market right now and yields continue to edge upwards, which has not been the case since early 2008.

If we gauge the temperature of investors in commercial property at this current moment, we discover warm support for the sector. The low interest rate environment has encouraged people to seek out high yielding investments and, although there have been noises from the Bank of England regarding a rate rise, there has been no movement, and we do not expect there to be for a number of months yet.

With the UK property market remaining strong, the positive knock-on effect for commercial property has been notable. Figures reveal that confidence has risen amongst UK commercial developers and the positive sentiment is linked to the better economic conditions across the UK. Indeed, commercial activity in the UK rose in November, marking a 39-month of growth, expansion has been solid to say the least.

Where people were feeling the pinch after the recession triggered a downturn in the economy, the landscape is very different now.

Interest in acquiring businesses in the South West is soaring and our phones have never been busier. There is a real appetite amongst the business community to have a presence down here and we are facilitating that process.

The link road has provided the business boost that Torbay has been craving for many years. In the past. the region had suffered from dwindling business investment as traffic chaos remained a deterring factor for people setting up in Torbay and the surrounding areas – The new road has brought fresh hope and a bright future, with businesses being able to rely on the road, making the area more attractive to new enterprise and investors, boosting the economy and providing more jobs.

The industrial sector continues remains strong with distribution warehouses, storage depots and click & collect centres all in high demand as consumers become increasingly keen on online shopping, and given that Britons have the highest level of online spending per head of all developed nations, the demand looks set to continue.

As businesses have expanded and as employment has improved, demand for offices and consumer sentiment followed in step. Against a backdrop of low supply, rents rose and capital values started to recover.

A clear trend shows that investors are increasingly lured by higher yielding investment outside of London and the South East, particularly in the office and industrial sectors and with stamp duty changes due from April 2016 which affects people buying additional property, including buy-to-let or second homes, who will face a 3 percentage point surcharge on stamp duty rates, there is already a notable change from residential investment to commercial investment.

The 2016 outlook for commercial real estate remains positive. Total returns in 2015 are likely to be higher than 2014, with Charles Darrow handling more than £7m worth of investment property sales in South Devon 2015, the future is certainly more optimistic than it has been for some time.