Colliers predicts UK commercial property to pass £50bn in 2018

Colliers International has predicted that investment in UK commercial property will exceed £50bn for the sixth consecutive year in 2018. Experts at the advisory firm said increased certainty of a UK/EU relationship post-Brexit has given businesses confidence to continue investing in UK real estate. Tony Horrell, Colliers’ UK & Ireland chief executive, said: “Many international investors are looking for scale. London will continue to benefit from the stock of large lot size trophy assets, while the growth in UK and pan European specialist platforms will also attract major institutional, private equity and sovereign wealth investors. “Development activity in London, alongside the development potential in the regions, will bring new Grade A product across sectors that will help to drive capital activity in 2018.” Colliers top five predictions for UK property in 2018: Investment volumes to exceed £50bn Investor base will continue to widen UK institutional funds will invest net profits (for the first time since 2007) High-yield regional and non-core locations will attract investment Industrial will see top performance and will be integrated with residential use The forecast is a drop from the estimated £55bn of transaction volumes for 2017. While 2017 was characterised by uncertainty, Colliers experts say the property market proved resilient and 2018 will tell a similar story. Mark Charlton, head of UK research and forecasting, said: “Property performance is likely to moderate in 2018 as pricing remains pressured and rental growth modest, but on the upside, the market will become less volatile, offering attractive, stable returns for investors.” He added that revised pension legislation will create new inflows for UK institutional funds. These funds have been net sellers since 2016 but Charlton said Colliers expects substantial investment in UK property this year. Industrials were the top performing sector in 2017, exhibiting high returns and investment volumes, and Colliers anticipates this trend to continue through 2018. Charlton said: “The industrial market will be the top performing core asset class for the second year running as the drive towards greater e-commerce and competition for space drives up rents, particularly in London and the South East. “The conflicting demand for industrial and residential space in these areas is likely to see the first truly integrated industrial mixed-use scheme come to fruition in 2018 as evolving design techniques make these schemes increasingly viable.” Colliers’ December residential data shot report highlighted how the Mayor of London’s draft London Plan will make housebuilding easier through relaxing planning restrictions and this will also pave the way for mixed-use schemes in the capital. Some of the largest deals of 2017 came from new entrants and overseas investors attracted by a depreciated sterling buying property in London. Hong Kong- listed CC Land bought the Cheesegrater and LKK the Walkie Talkie, both EC3. Horrell said: “With sterling likely to remain competitive against the US dollar, further new entrants, particularly from Asia, are expected to enter the UK market, attracted by buy-side currency plays. “The UK will also continue to benefit from ongoing questions surrounding US and Chinese foreign and economic policies, as its reputation as a safe, liquid and transparent haven for investment and will continue to attract global institutional money.” But Horrell explained that international investors this year will seek value and high yields in regional and non-core locations and predicted this would drive development activity in areas of high demand. Colliers’ chief economist Walter Boettcher said global institutions that are targeting allocations of around $5tn into real estate, forcing the UK property market to overcome political tensions with “business as usual”. However, he added: “In 2018, the UK government will have no choice but to shed some light on the Brexit strategy, which will bring a welcome boost of confidence to the occupier and investment markets.”