Our views

The Industrial Revolution: UK property market update


Tim Greenway, Property Analyst

23 May 2017

We believe the industrials sector continues to offer the best short-term opportunities: strong occupier demand and constrained supply are supporting leasing activity and driving rental growth, and, pending completion of several current transactions, we will have committed over £170m to this sector since October 2016. Although uncertainty around the Brexit negotiations rumbles on, we do not expect this to impact occupier demand across the market in the near term.
Vorsprung durch Brexit!
This time last year, the UK property market stood on the verge of a major upset, as shockwaves from the EU referendum rippled through financial markets. Property funds saw large-scale redemptions, and capital values fell by 4% on average from June to September, and by 2.8% in July alone. The office sector was hardest hit, as London’s future as a financial hub was called into question. The retail sector also plunged, but industrials, which had led returns prior to the Brexit vote, remained relatively resilient.

We believe the industrials sector continues to offer the best short-term opportunities: strong occupier demand and constrained supply are supporting leasing activity and driving rental growth, and, pending completion of several current transactions, we will have committed over £170m to this sector since October 2016. Although uncertainty around the Brexit negotiations rumbles on, we do not expect this to impact occupier demand across the market in the near term.

Vorsprung durch Brexit!

This time last year, the UK property market stood on the verge of a major upset, as shockwaves from the EU referendum rippled through financial markets. Property funds saw large-scale redemptions, and capital values fell by 4% on average from June to September, and by 2.8% in July alone. The office sector was hardest hit, as London’s future as a financial hub was called into question. The retail sector also plunged, but industrials, which had led returns prior to the Brexit vote, remained relatively resilient.

Source: MSCI as at 19 May 2017

Incoming trend

Brexit aside, UK property investors have enjoyed strong returns in recent years and, more recently, six consecutive months of capital growth. However, we expect capital growth to tail off in the near term, as the market approaches the end of its current growth cycle. In the next phase of the market cycle, we expect rental income, which has traditionally formed the most stable element of property returns, to be the primary driver of performance and total return in UK property. There is also scope for income growth to contribute to total returns, though this largely depends on skilful management of property assets.

The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.