Positive Yet Challenging Predictions for Commercial Property Sector in 2016

Posted on 4 December, 2015 by Chris Grigorovsky

Investment Director at Heartwood Investment Management, Alan Sippetts, recently made his predictions for the commercial property industry going into 2016, and his overall outlook seems positive, according to World Property Journal.

view of canary wharf london uk from across the river thames

Two areas in particular that are mentioned are the “niche” areas of office and industrial space. Mr. Sippetts expects the positive momentum to be maintained based on two major factors, rental growth and ongoing international investor demand.

With rental growth, given the limited room for capital growth, the income aspect will be highly important in the contribution to future potential returns, as well as the supply – demand balance which will support it.

However, he says that the sector continues to play catch-up due to low vacancy rates. Rents in London throughout the first half of the year had been steadily rising by 5.2% according to IPD Central London Office Index, and are on the path to surpass full-year 2015 forecasts of 8%.

International investor demand over the last two years has seen strong activity, thanks to rising rental growth. The Property Investors Bulletin, September 2015, reported that 50% of investment purchases for UK commercial property were from overseas. The open, transparent and consistent legal framework is why it sits above other developed economies.

There are also risks involved and one major factor being the hike in interest rates. The tightening cycles of interest rates in both the UK and US are expected to be benign and shallow should maintain investors’ interest in higher income assets such as property.

He expects a much more challenging environment in 2016, with sentiment being affected by the rising interest rates and potential headline risk surrounding the Brexit. However, select areas will remain supportive and UK commercial property will continue deliver stable income in an environment of steady economic growth.

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