Is UK commercial property bubbling along?
The debate over the future of UK commercial property continues to swing back and forth like a pendulum. Some commentators suggest that the UK is heading towards 'bubble territory', while others see a bright future on the cards. Now remarks made by Mark Carney, the Bank of England's (BoE) governor, have further muddied the waters.
New developments
Mark Carney recently told the European Parliament that a sharp increase in commercial property values poses a significant risk to financial stability and warrants careful monitoring.
In a Financial Stability Report (FSR) released earlier this month, the BoE suggested that the commercial property market is one of the five most significant threats to the UK's financial health. The document warned that a severe downturn in the market could "reduce the ability of some firms to access bank finance, given their use of commercial real estate as collateral." The BoE's Financial Policy Committee went on to declare that it "stands ready" to step in should commercial markets overheat.
What's more, the latest forecast from global real estate advisors CBRE suggests that UK commercial property investment has peaked, with total investment in 2016 remaining steady at around £70 billion. Overseas capital has been one of the main drivers of the capital's market, but is now levelling off at around 70% of all London investment as investors shift to 'second tier' cities. Continental and American investors have also withdrawn over the past year, possibly as a result of recovery Europe's gradual recovery.
Continued uncertainty
Alan Sippetts, Investment Director at Heartwood Investment Management, remains optimistic about the property market, pointing out that "the UK commercial property market is highly liquid...(and) is maintaining strong international investor interest."
On the other hand, the US Federal Reserve's recent rate increase has reignited concerns that the UK may bump up its own rates, and has compounded uncertainty caused by the possibility of 'Brexit'. Indeed, there appears to be more confusion than ever over the future of the UK's commercial property market, making it doubly important that landlords secure their cash flows and recover rent arrears efficiently while the going is good.
