Investment Brief - Autumn 2019

Investment Brief provides an impartial forward-looking review of the UK commercial property investment market. Inside this report you will find a detailed sector breakdown of recent investment performance as well as our opinion on the outlook for each sector.

UK Economy

UK economic output contracted in Q2 2019 for the first time since Q4 2012. Similarly, investment in UK commercial property and the annual total return generated by those assets were also their weakest since 2012. A notable drop in portfolio sales contributed to a fall in the average property transaction size.

Uncertainty surrounding Brexit is the major contributing and continuing factor, though commercial property is also late-cycle and this is set against a more general global economic slowdown.

So far in 2019 there has been an increase in off-market and restricted marketing transactions to a bespoke target buyer list, with vendors reluctant to widely market their assets due to a lack of confidence.

Subdued property investment volumes are expected while the Brexit impasse continues. There is domestic investment demand for UK commercial property, an attractiveness for overseas buyers and a wellfunctioning debt market. However, both buyers and vendors are, on the whole, still likely to wait it out until more clarity emerges.

Commercial property annual total return is set to fall to 2.1% in 2019 and reach a low point of 2.0% in 2020. Income return is set to partially offset expected negative capital growth that will result from yield softening across most property segments.

We have brought our forecast for retail units forward slightly. More deeply negative returns are expected for 2019 but with a similar correction overall. Retail is still anticipated to generate the lowest returns of any property sector over the next three years, with shopping centres particularly affected.

Industrial is still forecast to outperform the other property sectors over the next three years, with only really the non-core properties expecting much outward yield shift. In particular there is still strength in multi-let, and London and the South East are forecast to outperform.