Ryden's agents across the UK give their views on the best prospects in commercial property this year.
1. With business confidence in Aberdeen improving we anticipate investor sentiment will feel the positive knock on effect this year. Whilst active buyers have been scarce in recent years, we noticed an upturn in enquiries during the latter half of 2017 as more recognise the timing may be right to acquire product with good fundamentals as the occupier market improves. Aberdeen offers a substantial yield discount compared with other UK regional cities and this is sure to tempt some in the coming year.
2. Dundee is set to be the hot new destination in Scotland in 2018 with the opening of the V&A. At the end of 2017 approval was given to build a £15.5 million office block on an adjacent site. With five floors of grade A space it’s an attractive option for a government agency or other large employer and will be surrounded by new leisure developments.
3. Good quality industrial property is highly sought by occupiers in Central Scotland and we predict more investors will make a move into the sector in 2018 while pricing remains attractive. There is an opportunity to refurbish existing assets but new build stock is needed to match demand. The best refurbed stock will achieve upwards of £7 per sq ft in the next 12 months.
4. Larger occupiers in Edinburgh are going to struggle to find quality office spaceover the next three years. The developers of 2 Semple Street, the only Grade A office due to complete in 2018, are already exploring if additional space can be added during construction. With no other schemes completing until close to 2020 the shortage of space is acute.
5. It is a similar story in Glasgow with no new build offices ready to launch in 2018. The focus for developers will continue to be on creating high quality refurbished space to satisfy occupational demand. We expect rentals will rise above £30 per sq ft this year for the best space.
6. Prime residential locations will continue to be robust in Scotland. Housebuilders who have been unable to pick up the large scale sites will start to look further into the regions this year, although infrastructure constraints will remain the major block. Funding for small scale schemes of less than 50 units will be a challenge outwith prime areas like central Edinburgh and Glasgow while the private rented sector will struggle to secure enough land from other uses to achieve sufficient scale in city centre locations.
7. Investor, developer & operator demand for student housing remains strong in Edinburgh but is showing signs of slowing in other Scottish cities. There is an increasing focus on working in partnership with universities.
8. Developer and operator interest in the hotel, aparthotel and serviced apartment sector has been increasing, driven principally by tourism in Edinburgh and large events in Glasgow. Manchester also remains strong with over 1,000 beds added in 2017 and a similar amount likely this year. This sector looks likely to be one of the fastest growing in 2018, reflecting the UK's appeal as a good value destination for inbound tourists.
9. Due to the very limited supply of industrial space in North England, especially of units less than 50,000 sq ft, coupled with the growing demand for facilities to satisfy last mile distribution requirements, we expect to see rentals grow to over £6.50 per sq ft across the North West. Yorkshire also has a strong industrial market with limited new development which will push rents up in 2018. Demand for freeholds will remain strong.
10. Leeds city centre had a bumper year in 2017 with office take up exceeding 1 million sq ft. This will reduce in 2018 but there will be upwards pressure on rents reflecting the reduced supply. The investment market has been relatively quiet, largely due to a lack of sellers, but investor appetite remains strong.
11. In Manchester the office and private rented sectors will continue to dominate. Only one new Grade A office building will complete in 2018 which will enable office rental growth to consolidate before the increase in new supply hits in 2019. We are also going to see the co-working trend continue with We Work, XYZ Works, Watch This Space and others expanding. The private rented sector market is now well established with institutional investors. More will follow.
12. The offices market is the one to watch in Liverpool. HMRC`s move to India Buildings, the sale of many older buildings for residential/hotel conversion and virtually no Grade A office supply will lead to new development for the first time in 10 years at Kier Properties/CTP`s Pall Mall scheme. The opportunity is ripe for high quality refurbishment of existing stock and co-working.
13. The Central London investment market has stepped back a little to reflect the uncertainties surrounding Brexit, having been white hot for several years. Whilst some overseas investors continue to seek well let offices, the seasoned overseas investors have started to take their foot off the gas, allowing investors who have traditionally been outbid a chance to gain representation in 2018.
14. Outer London and the rest of the South East and Southern England continues to attract strong investment attention. Industrial units of any nature, size or quality remain the darling of the market, with yields at the prime end of sub 4% now being achieved in the capital and sub 5% in the South East. This trend is set to continue over the next 12 months.
15. Across the UK Brexit will begin to move from being a market-wide consideration, to an increasingly sector-specific issue, as the likes of financial services, manufacturers, construction, food & drink and education ponder and plan for their future labour, customer and trade relationships.