By Emanuela Barbiroglio

Signs of recovery in commercial property investment

The investment market bounced back from the Brexit vote to show tangible signs of recovery in the final quarter of 2016, new data reveals.

After falling by 4% during Q3 in the wake of the EU referendum result, values rose by 1.2% over Q4 according to CBRE, which recorded a 0.6% uplift in December alone – the most significant monthly growth recorded by the CBRE UK Monthly Index in 2016.

The latest numbers “may surprise many on the upside”, says CBRE’s head of UK research Miles Gibson. “Some sectors seem to have recovered slightly in an end-of-year rally,” he says. “So the picture is more optimistic for investors than they may have feared.”

The industrial market in particular is performing strongly with values up 1.4% in December, capping off a strong year during which values rose 1.5% and total returns reached 7.2% despite the Brexit vote. By contrast, retail and office values fell by 5% and 2.5% respectively and returns in both sectors were only just in positive territory.

The volume of transactions in Q4 was also higher than some commentators feared. Although volumes were down 18.5% on the same period last year, they were 31% up on the third quarter, reveals Lambert Smith Hampton’s UK Investment Transactions Report.

LSH Investment Volumes

Ezra Nahome, chief executive of LSH, characterises the Q4 figures as a “rebound”, adding that he is “quietly confident” that this year’s deal volumes will be higher than last year’s.

The transactional data also demonstrates the growing appetite among overseas investors for UK commercial property. Almost half the £12.8bn of property sold during Q4 was bought by foreign investors who have benefited from the weakness of the pound since June.

Total returns 2016

The strength of demand was underlined in a trading update from Savills last week in which the firm said its 2016 financial results would be “meaningfully ahead of previous expectations” thanks in part to the growing interest in UK property emanating from overseas.

So long as that trend continues, there is reason to remain optimistic about the prospects for the investment market this year.

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