The outlook for the commercial property sector in 2017 is looking more positive than expected. Although real estate firm CBRE has reported a 2.4% fall in commercial property values during 2016, the industry remains cautiously positive for the year to come. A survey of forecasts by the Investment Property Forum shows that experts broadly expect returns to rise – but commercial landlords must remain diligent with their cashflow to ensure success.
Property prices are likely to remain volatile as Brexit takes shape during the year, with the Investment Property Forum predicting further falls. The Bank of England's warnings over instability in the market have had a knock-on effect with lenders and the cost of borrowing against UK commercial property has also started to increase after two straight years of decline.
However, there are trends which are helping minimise these risks. For example, pensions specialist Xafinity Group stated that commercial property purchases through pension funds have increased by 20%, driven by SIPPs (self-invested personal pensions) and SSASs (small self-administered scheme pensions). This is positive news for investors looking for more landlords with long-term interests in the sector.
Additionally, not all international investment has slowed at the same rate. While overall investment in London commercial properties fell by 55% last year, investment from China fell by just 22%. This suggests that there remains appetite for UK property abroad, particularly after the weakening of the pound.
The main cause for optimism, however, is rental growth. Slow building rates, falling availability and surprisingly strong UK economic performance have meant a steady rise in rental values. CBRE recorded a 1.7% yearly rise in rental values, and the Investment Property Forum forecast survey also suggests that yields will ensure positive returns in 2017.
Some commercial property agents predict that rising demand from online retailers will mean investors increasingly look to warehouses for returns. But for many commercial landlords, this could instead mean a shift of focus away from investment in new opportunities entirely, as they look toward the cultivating of positive, reliable tenant relationships.
In the latter instance, cashflow remains critical to ongoing success. As well as understanding, responding and adapting to client needs, it has never been more important to ensure that rents are paid fully and on-time. That means refining invoicing processes and ensuring enforcement plans are in place just in case.
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