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Is the UK's commercial property market a world-beater?

The UK's commercial property market has been sending out mixed signals over the past year. Some analysts have suggested that the market is peaking, while other observers point to cross-country growth as evidence that a bright future is on the cards.

Alan Sippetts, Investment Director at Heartwood Investment Management, has now argued that the UK's market isn’t just growing, but giving international rivals a sound beating. Which party has it right?

Yes

Optimistic readings of the market's future are based on the assumption that three key drivers will continue to exist:

  • International investor demand, which represented 50% of investment in the year ending 31st August.
  • Rental growth driven by business expansion.
  • Stable incomes underpinned by increasing demand and a weak supply of new properties.

While anyone who suggests that a good thing will last is sure to draw scepticism, Mr. Sippetts isn’t alone in his thinking. UK Consensus Forecasts from the Investment Property Forum found that leading fund managers felt increasingly positive about the state of the UK commercial property market in the three months leading up to August.

No

While it’s clear that improving economic conditions provide a strong basis for continued growth, there are also reasons to doubt that the UK's commercial property market will continue to be a world-beating 'standout'.

Firstly, high levels of foreign investment may not last forever. China's slowdown, falling commodity prices and potential interest rate hikes by the US Federal Reserve could stem the cash flows that currently bolster the British market.

Furthermore, David Cameron has announced a crackdown on ‘dirty money’ entering Britain's property markets from shell companies in tax havens. If this change really takes place, foreign investors may look elsewhere for commercial property, especially since the UK's EU referendum is also looming around the corner.

Finally, there’s the issue of a potential rate rise by the Bank of England. If interest rates climb in early 2016 as Governor Mark Carney has suggested, analysts think that this change could hit commercial landlords hard.

With so much uncertainty about the future, it's important that landlords maintain secure cash flows and recover unpaid rent arrears quickly. If you deal in commercial property yourself, contact us to discuss how sensitive debt collection could help to future-proof your livelihood.

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