Our chief economist and EMEA Head of Research comments on the market on the day the UK leaves the EU.
Dr Walter Boettcher, Colliers International’s chief economist, said: “Discussions and instructions in the commercial real estate market suggests that the stability of a UK government with a strong mandate may have been enough to inspire renewed investor confidence. Over the last six weeks, a global appetite for UK commercial real estate is apparent from investors across Asia, including Japan, and North America, but also from German investors.
“Some UK economic survey indicators also suggest a strengthening of business sentiment which may explain the Bank of England’s decision to leave the base rate unchanged. The economic outlook remains uncertain, with opinions varying widely. Clearly, though, the onus is now on Government policy to stoke the economy, should it be required.
“The Prime Minister continues to make positive noises about infrastructure investment and regional economic rebalancing, all good news for commercial real estate, but we await the March budget announcement to see if these result in concrete foundations.
“Of course, Brexit still needs to be negotiated, hence its risk is not completely dispelled. However for the moment, commercial real estate investors seem content to begin positioning themselves for what looks, so far, like a potentially very interesting and active year.”
Damian Harrington, Head of EMEA Research at Colliers International, added: “Despite the challenges facing Europe in the past few years, the real estate market has maintained a healthy position from both an occupational and capital markets perspective.
In 2019 office take-up across Europe, for example, was very much in-line with 2018 levels, and occupier conditions are still heavily weighted towards landlords. So despite slowing employment growth, a mixed macro outlook and a rather turgid beginning to the year, provisional European transaction volumes came in very close to their 2018 levels of €308 billion – only two per cent down. Capital values – at least outside of retail – continued to grow which has helped maintain the volume momentum. And all this, despite a 30 per cent drop-off in activity in the UK.
“This year a pick-up in activity into Britain is expected as it is arguably the most mis-priced market in Europe, if not globally, from a yield perspective. Further across the region, we can expect more retail assets coming to the market, helping to make up for the dearth of new commercial real estate available or changing hands. We are also likely to see investors incorporate more operational real estate into their portfolios and make niche plays by sector, in order to drive returns and mitigate their risk.
“Ultimately, despite today being the day Britain officially leaves the European Union, it should be a good investment year for the continent, including some rebalancing of capital distribution back to the UK.”