HIGH BUSINESS CONFIDENCE WILL LEAD TO A STRONG 2018 FOR COMMERCIAL PROPERTY

Published 3 January 2018

Guy Gowing2

Guy Gowing | Managing Partner

2018 is set to be another strong year for the commercial property market, providing confidence is not undermined by bad handling of the Brexit negotiations – that is the prediction of Guy Gowing, Managing Partner. Business confidence will remain high despite continuing uncertainty over the UK’s future relationship with Europe, and that this will be reflected in rising rents and falling retail vacancy rates across the county.

All sectors of the commercial property market are performing surprisingly well given the gloomy forecasts being put forward by some commentators. Provided sufficient progress is made towards a trade deal with Europe, I believe that 2018 will see confidence staying at a high level, which is good news for property investors. Although the Chancellor downgraded his macro economic forecasts in the Budget, we will still see GDP growth of around 1.4 per cent, which is a comfortable, sustainable level. 

Inflation will peak at around its current level and then start to fall as the effect of the devaluation of sterling works its way out of the figures – although it will still stay above the target level of 2 per cent.  I see inflation at about 2.7 per cent by the end of 2018. Meanwhile interest rates will remain low.  It’s possible we won’t see any further increases due to government fears about the economy, but if there are rises, they will be very small and very gradual.  We will end the year with the base rate below 1 per cent.

Commercial property predictions for the year:

Retail

Norwich’s popularity as a retail centre will continue, and demand for retail properties will remain high from both national operators seeking representation in Norwich and local, independent retailers, riding on the success of The Lanes marketing initiative. 

Vacancy rates for retail properties, which have fallen over 2017, will remain below the national average.  Capital values will remain strong, mainly due to low interest rates and a dearth of significant alternative investment opportunities, while high demand will keep rents at a healthy level.

Market towns will face a bigger challenge, although the picture is not consistent.  Towns such as Aylsham, which does not face great competition from out-of-town retailers, and which has been able to carve out an identifiable niche position, will thrive - but some other market towns will have a tough 2018.

Offices

Rents for Grade A offices, especially in Norwich city centre and in the city’s business parks, have the potential to rise further, after a strong 2017.

This year has seen the best open-market lettings reach as high as £15.50, and in 2018 that has the potential to rise further, perhaps as high as £18.

With no over-supply of quality offices premises, opportunities will emerge for new development around the newly-opened NDR.

Industrial and Warehousing

Rents have risen by around five per cent in 2017 due to the strong performance of SMEs, which are the backbone of the Norfolk economy and can be accommodated in flexible units suitable for a range of uses.  Another factor has been the growth in the online retail sector, which has driven demand for warehousing and distribution centres.

2018 will see continued growth, with rents facing upward pressure, perhaps by another five per cent.

Holiday Lettings

With a number of tax and regulatory disincentives facing residential landlords, savvy investors are finding other areas, particularly holiday lettings and serviced apartments.  Provided investors have the right management plan, holiday lettings can provide a strong return on investment, and 2018 will see the ‘staycation’ market strengthen.

All of these predictions come with a strong caveat - confidence and investment performance could be impacted considerably if we don’t see a competent and focussed approach to the Brexit negotiations from our politicians and negotiators.

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