Despite the fact that European economy is struggling to overcome various issues including the euro, economic growth and political uncertainty, demand for UK commercial real estate is set to hit an all-time high in 2015. Recent estimates suggest that in excess of £70 billion will have been invested in the UK commercial real estate market by the end of 2015 with a phenomenal £50 billion already in the bag during the first three quarters of the year.
History shows that the final quarter should bring in more than £20 billion in new investment (as seen in 2013 and 2014) bringing to a close an exceptional year for the UK real estate market.
Overseas investors coming to the fore
While the UK domestic media has been scathing of the UK real estate market the same cannot be said of overseas investors who continue to flock to the UK. Initial estimates suggest that of the £50 billion investment already banked in the first three quarters of 2015, £24.2 billion came from overseas investors. This was a 45% increase on the £16.6 billion overseas investment in 2014 and currently accounts for nearly 50% of total investment in UK commercial property.
Experts believe that a bias towards overseas investors in the final three months of 2015 will see overall overseas investment top 50% for the first time ever. When you bear in mind that overseas investment in UK commercial real estate was less than 25% at the turn-of-the-century this is a phenomenal increase and shows that the UK is fast becoming a must have for international property investors.
Investors looking further afield than London
There is no doubt that London is the prime commercial and non-commercial real estate sector of the UK. Recently London has attracted more than its fair share of UK real estate investment and while this is likely to continue in the longer term, some investors may start looking further afield for better value. The statistics show that rental yields have fallen as prices have increased and for many investors it is becoming difficult to find those “quality value” developments. There is the potential for this to significantly benefit the wider UK with areas such as Oxford, Cambridge and Bath already catching the eye of many.
Prospects for 2016
While the large increase in both domestic and overseas investment in UK commercial real estate during 2015 has broken all records it is difficult to see this momentum carrying through to 2016. Many in the commercial real estate sector believe that 2016 could be a year of consolidation with a number of potential factors coming into play.
Factors such as a potential increase in interest rates, the forthcoming EU referendum and indeed further headwinds may arrive from Europe where the currency and economy is struggling. We only need to look at the Scottish referendum last year to see the potentially paralysing impact which a referendum can have on investors. Indeed, many believe that the Scottish property market has not yet fully recovered from the paralysis caused by the exceptionally long campaign trail leading up to the actual Scottish independence referendum vote. David Cameron, you have been warned……