With 2011 now behind us we reflect on a year in which the property markets continued in their adjustment to changing economic conditions. Early signs of some recovery have been suppressed by a series of global factors resulting in the most likely outcome over the short to medium term being low or no growth in the economy.
Our research shows ”Occupier demand in Scottish commercial property markets remains below the long term average, except once again in Aberdeen. Development activity continues to be curtailed by a lack of debt finance. Investment property performance has re-connected with occupier markets and offers steady income but weak growth prospects.” (source: Ryden’s 69th Scottish Property Review, an authoritative report on the country’s commercial property sector)
This year we expect continued uncertainty as the UK economy deals with low growth in its major markets and ongoing restrictions on bank lending. The impact of the deleveraging process has been softened by low levels of interest rates which seem likely to continue but the knock on effect of austerity on households, businesses and governments seems set to keep GDP growth subdued.
All that said, the imperfect nature of the property markets continues to offer opportunities. Whilst demand from occupiers of property is generally below the peak of the boom years there is a steady stream of activity. The re-shaping of the property sector began early on in the now prolonged period of lower growth. One of the dramatic effects of the downturn has been the reduction in new development and the almost complete absence of speculative development and the resulting restriction in the supply of new property. Where occupier demand is sufficiently strong, a selective pre let market is emerging allowing some new commercial building to progress, for example for food stores.
Whilst government spending has been cut back significantly, public money continues to be invested in important infrastructure projects and these offer a short term boost to the construction sector and a platform for further commercial property activity. Other growth initiatives by government as part of Plan A plus are also welcome encouraging a focus on specific sectors, for example green energy, enterprise zones and low cost housing.
The market will continue to evolve and the challenge to our sector is to adapt to these changes and to make sure we make the most of the opportunities to enhance the built environment and thus contribute to sustainable economic activity.
For more information or to discuss this article, contact fiona.morton@ryden.co.uk
