commercial property lambert smith hampton

Viewpoint - 18/03/2019

Taking stock of investment prospects in 2019

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It will surprise few to learn that the commercial property market is expected to be relatively subdued this quarter as investors wait for clarity on the UK’s exit from the EU.

Yet even in times of uncertainty, there are positive steps that can be taken.  Here is a rundown of the prospects for 2019 and my view on four emerging opportunities. 

1. If a ‘No Deal’ is avoided, it is likely that the UK’s economic prospects in 2019 benefit from a rebound.  So, expect uncertainty in Q1 to create a window of opportunity for buyers with volume back-loaded in the second half of the year.

2. Last year proved remarkable for the scale of divergence between industrial and retail returns. Looking at UK-wide figures, they stood at circa 18% and 0% respectively.

As for Swansea, as with all city centres, there is nothing to suggest that ongoing structural change in shopping patterns will end this year. However, expect a limit as retail has already experienced significant ‘correction’ and industrial assets are already enjoying high value.

The industrial sector will continue to perform as even if occupier demand does soften in 2019, tight supply will lead to a degree of rental growth in office markets.

3. The high street has suffered in recent years but there is a growing sense that retail units can offer value.

 While retailers in clothing and electrical goods have been increasingly squeezed out, a keen understanding of changes in local markets will offer up opportunities. For example, Swansea’s growing student population in the city centre should attract investors and openings geared to serving this market.

 4. Cardiff led the way for local authorities working to accommodate regeneration on land they own, while providing annuity inflation-linked income for investors.

These arrangements are key to generating development finance for new projects. By working to de-risk property value at the end of the lease (typically 30 to 50 years) for the investor, it becomes easier for actuaries to model outcomes as part of a liability hedging profile.

So, while Brexit casts a shadow over the year ahead, ready-built stock designed to meet the demands of local markets still represent a clear opportunity.

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