The election result should clear the main obstacle that stalled the UK office market in 2019 and lead to a serious uptick in investment transactions, says Simon Price, Real Estate Partner at Linklaters.
“In 2019 our overseas clients saw opportunities in the UK market but they were unable to underwrite deals because their investment committees took a cautious approach based on the political uncertainty that arose from the delay to the Withdrawal Bill and a real threat of a Corbyn-led government. This result should give the market a much higher degree of certainty and stability which should remove a major obstacle to transactions,” he says.
“The fundamentals for the UK office market, principally in London, look sound. There is good demand in the letting market with stable rents and no shortage of debt finance. When you compare the 4% plus prime yields in London to equivalent values in key European Cities- where the demand throughout 2019 was intense- it is likely that a pent-up demand for UK offices will see overseas investors flooding back into the market in 2020. We expect to see higher levels of development as the supply of large scale buildings looks constrained over the next few years.
There will be bumps in the road with economic data showing a stagnant economy and significant further Brexit negotiations with the European Union to be undertaken, but the reaction of the equity and currency markets to the news of a Boris Johnson majority shows positivity about the UK’s prospects and higher degree of political certainty.
We expect the alternatives sectors- logistics, student housing, hotels and PRS- that were ‘hot property in’ 2019 to remain active in 2020, but retail still has serious issues to deal with.”