Property Remains A Compelling Investment Vehicle,
12th February 2019
We currently face one of the most challenging political backdrops seen for a generation. Businesses and industry bodies continue to call for clarity with many having delayed investment decisions in the hope the next European Summit would bring a workable solution to satisfy Parliament and facilitate an exit from what seems like a never-ending state of flux associated with Brexit.
Commentators have likened the challenges facing business to that of the 2008 recession, but we wouldn’t. Whilst political challenges are often accompanied by economic ones this time round our Banks are sufficiently capitalised, post-recession growth has been sustainable and where the property industry is concerned we are on a stable footing, with underlying fundamentals remaining generally robust.
Our Office sector has been the star performer of 2018 with the continued positives in the occupational market fuelling investor demand. Whilst we don’t expect rental growth on a par with the last 24 months the supply/demand dynamics remain compelling. With headline rents consistently hitting £23 per square foot plus and the assistance of the NI Investment fund we expect further development in this sector thorough 2019.
Outside of prime, retail is a challenge, with the way we shop seeing a structural change the provincial high street has an uphill battle to recover. This dynamic has gone to value for many of our shopping centres where pricing continue to soften as investors look at the wider challenges faced by many of the tenants. We don’t expect this to change through 2019. However, sustainable schemes with the right retail and leisure mix undoubtedly present an opportunity as the retail landscape will condense in years to come. Don’t forget, Amazon have opened a store in London and bought Whole Foods in the USA. The online giant clearly sees some future in “bricks and mortar” retail.
Where the retail market has suffered the Industrial and logistics market is likely to see continued growth this year coming off a still low base of £3-4 psf, especially when considered in the context of Brexit we can see some demand driven by business wanting to hedge location risk.
The “Alternatives” sector has seen a huge growth in institutional demand across the UK, second now only to offices, and we expect to see local investment activity in this sector in 2019 – we have seen unprecedented Hotel and Student bed numbers come online in 2018 with PRS in the pipeline. Value in this sector is not contingent on anchor tenant performance but instead focused on fundamentals, external catalysts such as universities and central business districts which are relatively immovable.
The property market faces external challenges, just as the equity and bond markets do, arguably even more so in the face of on-going volatility linked to protectionism and concerns around a market correction in the US. With this in mind, Property remains a compelling investment vehicle, especially in a continued low interest rate environment. The political challenges in relation to Brexit are significant, however when placed in the context of the property market the picture is more positive than the headlines portray. We have a City Deal to progress, a new University Campus to come on line this year, a City Centre Transport Hub, the NI investment fund will continue to support new employment generative developments next year and notwithstanding Stormont shirking responsibility we expect to see significant infrastructure projects progress.
This article originally featured in The Irish News in February 2019