North East property market in good health despite Brexit fears

Cushman & Wakefield’s Richard Pickering, Head of Future Strategy, Richard Turner, Head of Investment in Newcastle and Darren Yates, Head of Retail Research & Insight

Cushman & Wakefield has presented its North East Property Outlook for 2018 and beyond. The breakfast presentation, held at the Tyneside Cinema in Newcastle city centre, revealed that the commercial property market in the North East remains in good health, despite the region’s disproportionate exposure to the negative effects of Brexit and the ongoing gloom on the high street.

Richard Turner, Head of Investment at Cushman & Wakefield’s Newcastle office was joined by Darren Yates, Head of Retail Research & Insight and Richard Pickering, Head of Futures Strategy at Cushman & Wakefield to discuss market conditions and the opportunities and threats that lie ahead.

Darren Yates began the event with a presentation which set the scene and discussed key trends in the commercial property market across the main sectors.

Economic and political uncertainty over the last year have made business planning extremely difficult, particularly for sectors like banking, the car industry and agriculture. However, last year also saw the second highest volume on record for commercial property investment with around £60billion worth of deals, driven largely by the industrial sector.

Darren Yates said: “We are seeing a longer term trend which is the growth in industrial, leisure, alternatives and mixed-use, largely at the expense of retail. We’re also seeing an increasing shift towards mixed-use and a blurring of the traditional sectors.

“A more recent trend has been the slowdown in the shopping centre investment market, which reflects investor concerns around the structural changes going on in retail, particularly the secondary market.”

Richard Pickering, Cushman & Wakefield’s Head of Futures Strategy discussed future trends and the impact of digital disruption on the real estate industry.

He said: “There is significant change on the horizon for our industry, led by a shift to a digital economy, plummeting costs of technology and the emergence of new business models.”
Richard’s long-range predictions included: the use of shops changing into a marketing rather than sales function, the re-onshoring of elements of manufacturing as the use of robotics becomes more prevalent, the reinvention and unbundling of housing elements to match new living trends and an expansion of the size of our city ecosystem, driven by transport innovations and virtual working.

Richard said: “Developers, investors and policy makers should plan for the impact of digital disruption in the same way as they plan for competition and near term market movements. With change there are always going to be winners and losers and the greater spread of potential outcomes provides opportunity for those willing to be proactive about the change ahead.”

Richard Turner, Head of Investment at Cushman & Wakefield’s Newcastle office, then discussed the outlook for the North East’s commercial property and what opportunities lay ahead.

He said: “The investment market took a long time to recover from the referendum result with a year of low transaction volumes and weak prices. In the second half of 2017 activity levels rose sharply and we expect 2018 to be a strong year, with a wide range of money chasing good quality property.

“The market is still struggling to adapt to the pace of change in the retail sector, but offices and industrial offer a fabulous combination of relatively high yields and continuing rental growth prospects. Eclipsing all of the above has been the rise of ‘alternative’ investments, for example, hotels, student residential, PRS and healthcare, which offer secure index linked income and now represent the biggest slice of the market.

“Much has been made of the impact of the local authority direct investment, particularly in the retail sector and the distorting effect on the market. In the North East, this tends to be focused on correcting market failure in order to bring forward development. The effect on local authority cash is dwarfed however by the impact of foreign investors, who remain major players in the region’s investment market.

He added: “With strong fundamentals, other than in retail, where there is a lot more pain to come, the North East can look forward to an exciting year ahead in the property market.”