UK rental values on "relatively sound foundations" - or built on sand?
Capital Economics, says that the UK commercial property rental market is on relatively strong foundations. However, it does point out that retail rents are "worryingly high" so we must ask whether this perhaps also means that capital values will also be overstated. Not ruling out a "demand shock", it is still worried about the effect of a recession.
Our recent survey about the effect of Brexit (available at http://www.irwinmitchell.com/business/real-estate/occupiers-survey-2016) notes that office occupiers do not think that the vote itself will have an effect on their need for occupational space. But all are looking nervously for any sign of recession. Earthquakes have a very scary way of turning solid ground into running sand.
UK property rental values are on “relatively sound foundations”, according to Capital Economics. The company, however, said rents were “worryingly high” in London’s retail sector. Central London retail rents are 25% higher than their previous peak and 41% above the level implied by their underlying trend. Capital Economics did not rule out a “demand shock” for the wider commercial property sector.
"At the all-property level,” it said, “supply conditions have been constrained in most sub-markets, so the most salient risk is a post-Brexit fall in occupier demand.”
Acknowledging the uncertainty raised by the UK’s vote in June to leave the European Union, the company said signals about occupiers’ response to Brexit had been mixed.
Capital Economics cited Irwin Mitchell’s recent survey, which found that 93% of 250 property occupiers felt June’s vote would have no impact on their demand for space.
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