Commercial property investment remains strong, despite Brexit uncertainty

Tim Matthews, CEO, Blue Marble Asset Management

Commercial property investment is largely unaffected by the political uncertainty around Brexit, as investor demand remains strong at present, according to Birmingham-based specialist real estate asset management company, Blue Marble Asset Management (Blue Marble).

In the latest edition of the Blue Marble Barometer, the quarterly forecast of the UK commercial property investment market, Blue Marble says that the majority of prime assets are still generating strong demand when they are brought to the market, with only a small proportion of investors having suspended their activity.

Blue Marble Chief Executive Tim Matthews says: “Despite the present Brexit turmoil the outlook for the next three to six months remains Fair, although some economic headwinds could apply pressure to move towards Unsettled. However, 2019 appears to have started where 2018 left off: investor demand remains strong, with good quality assets continuing to command competitive demand across the office and industrial sectors.

“Pricing remains robust with a number of November/December deals being agreed at prices significantly above asking prices, with purchasers from a range of sectors including institutions, local authorities, property companies and private investors.”

While it is too early for any 2019 data to be published, CBRE’s Monthly Index for December broadly reflects positive performances for both the office and industrial sectors. However, poor performance in the retail sector saw All Property returns for the month fall by 0.1%, with negative capital growth of -0.5% and negative rental value growth of -0.1%.

On a sector by sector basis, industrial once again stands out as the best performer, with a total month on month (mom) return of 1.4% (capital growth up 1% mom and rental value growth up 0.3% mom). Offices performed reasonably well with 0.7% total return mom (capital growth up 0.3% mom and rental value growth up 0.2% mom), but this performance was subdued by London markets which saw a fall in capital values across Central London, City and West End of between -0.4% and -1.2%, reflecting a cooling in the London office markets.

The biggest casualty is the retail sector, the performance of which has been pulled down by capital value falls for Retail Warehouses (-2.6%) and Shopping Centres (-2.5%). Overall the sector has witnessed month on month falls in Total Return (-1.7%), capital value growth (-2.2%) and rental value growth (-0.6%) while yields have moved out by 10bps.

Mr Matthews continues: “These most recent figures suggest that the downward trend for the retail sector is accelerating. While the London office markets are also suffering from a general decline, the rest of UK office market and the industrial sectors continue to perform very well, the latter in particular as demand for industrial continues to be strong, driven in part by the requirements of logistics operators to fulfil the demand from the increase in online shopping.

“Occupier demand remains the core driver which is providing investors with confidence for both the industrial and office sectors, with the industrial side benefitting from the shift away from high street to internet retailing, in addition to its traditional occupational markets. Notwithstanding the forthcoming departure from the EU, agents are reporting that occupier demand is holding up, and this is reflected in investor appetite for stock in these sectors, albeit with some participants using political uncertainty as a reason to pause their buying programmes.

“Blue Marble remains active in the market and is starting to see some opportunities presented off market, with less competition and a greater focus on deliverability by the purchaser.”

The Blue Marble Barometer is a quarterly forecast of the UK commercial property investment market based on current data and the direct market experience of Blue Marble Asset Management in acquiring, disposing of, and managing commercial and mixed use properties across the UK on behalf of its clients.