Whilst some industries are cautiously moving forward until we have a clearer path on Brexit, the Real Estate market is driving ahead with real optimism as demand in some sectors continues to outweigh supply.
This was certainly the view at Deloitte’s Annual Real Estate Dinner which always provokes interesting debate, and it was refreshing to see so many senior executives and industry leaders confident about the sector’s growth in the near-midterm.
Addressing over 40 of the region’s most influential property figures, this year’s speaker - President of the British Property Federation and CEO of Segro Plc - David Sleath, was upbeat about on-going market conditions, especially in the logistics sector.
Brexit was the single most important cause of concern in the room, but looking at the benign macro-economic conditions in most markets, he indicated that yields on prime assets may still have a little way to go and there is still room for rental growth.
This growth is partly driven by increased urbanisation, led by the digital economy - such as internet retailing - leading to a surge in demand for large sheds and urban space to provide ‘last mile’ delivery facilities and to host data centres.
Couple this with a combination of low interest rates, monetary stimulus by central bankers and continuing interest from private investors - particularly overseas investors – and we can see why.
Although we continue to operate in a cyclical industry, the tide will turn at some point but Sleath remains optimistic for the time being.
His insight pointed to four key determinants – global growth prospects, occupational demand, overseas capital investment and geo-political risks.
The continued recovery in the US over the past six months is certainly affecting other euro-markets, which bodes well for property yields in general. This is evident by interest from overseas investors buoyed by the referendum and weak sterling.
Politically we still remain in unchartered waters, but our EU counterparts are also facing political change which is giving areas of the market confidence to trade as normal.
However, whilst the future of the industrial and warehouse sector is very strong, caution must remain in other sectors - particularly pockets of the retail and London offices sector.
Deloitte’s Annual Real Estate Dinner is a great platform to seek the views of our peers and to provide an insight into how they view market prospects going forward.
Understandably, Brexit was seen as the greatest challenge facing the commercial property market, but we are still waiting for the fallout of leaving the EU and we could be waiting for a couple more years yet.
Perhaps reflective of Sleath’s predictions for the future, 64% of attendees felt the industrial and warehouse market will perform best during 2017 in terms of total growth measured by IPD.
Predictably, competition for Grade A office space in Birmingham will be high with 53% of the audience expecting available space by the end of the year to be less than 250,000 sq ft driven by a combination of business growth and a desire to move to better quality space.