Boston, MA -- (SBWire) -- 11/25/2013 --While the UK's commercial real estate sector has been one of the strongest performers across Europe - thanks largely to the safe-haven status of its capital - the industry continues to struggle in the aftermath of the global financial crisis. Nevertheless, while the market remains under pressure, there is increasing optimism for the sector with 2013 seeing the development pipeline becoming more active, investment on the up, rental rates remaining steady and improving vacancy rates.
In addition to improvements in the strengthening development pipeline, 2013 is seeing improvements across the rental sphere in terms of both yields and vacancy rates. It has been reported that commercial property returns in the UK rose to 0.9% in August 2013, the highest since March 2011 with income returns also remaining secure. Demand for commercial space is gradually strengthening with the RICS Property Rental Expectations Index reporting the first UK-wide decline in commercial property vacancy rates since 2007.
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Further improvement in the commercial real estate arena is predicated upon the return to a healthy macroeconomic environment. While the overall picture is still fairly weak, the UK economic recovery is steadily gaining momentum following several quarters of anaemic growth. Stabilisation in the eurozone and an improvement in private sector confidence will pave the way for a recovery in global demand and international trade, which will bolster the UK economy, and subsequently commercial real estate demand, in 2013. We are comfortable with our 1.1% real GDP growth forecast for this year and 1.4% in 2014, with the risks increasingly tilted to the upside. However, this limited growth will continue to dampen both property fundamentals and capital markets placing downwards pressure upon tenant retentions, rental growth, yields, development activity, financing and asset values.
Key Points
- Positive housing data - a product of the government's Help To Buy Scheme - has boosted our forecasts for the UK construction industry. Whilst we note downside risks for the future of the scheme, housing starts are up and homebuilders are performing well. Additionally, plans for some of the UK's major infrastructure projects have progressed and continue to provide upside to our long-term construction forecasts. We now see the construction industry value posting real growth of 0.2% year-on-year, up on a contraction of 2.1% forecasted last quarter.
- The UK economic recovery is steadily gaining momentum following several quarters of anaemic growth. Stabilisation in the eurozone and an improvement in private sector confidence will pave the way for a recovery in global demand and international trade, which will bolster the UK economy in 2013.
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New Business market report from Business Monitor International: "United Kingdom Real Estate Report Q4 2013"