RCA: UK price bounce in first quarter despite Brexit clouds

UK commercial property transaction prices increased by 11.2% on average in the first three months of this year versus the same period of 2018, the best performance of all the country-level indices covered by RCA worldwide.

Tom Leahy, RCA’s Senior Director of EMEA Analytics, explains:

“The strong performance of UK commercial property prices in the first quarter seems counterintuitive in a time of Brexit political turmoil and reduced transaction flow, but it illustrates that during a stressed market period where few forced sellers have yet emerged, it is the best properties that are finding buyers and lifting transaction prices. Research tells us that owners tend to dispose of winners and hold losers in these circumstances. They also need an incentive to sell given the associated costs of trading in and out of the market, which has helped to push up sale prices.”

The UK market picture is by no means uniform, however, with prices for offices in the ‘Big Six’ city markets outside London (Birmingham, Bristol, Edinburgh, Glasgow, Leeds, Manchester) coming off a low base and still 15% below their pre-financial crisis peak. Central London offices, meanwhile, are 55% above that level.

While there have been signs of life in the Big Six UK office markets over the short term, the general picture for retail property transaction prices in these cities has been unfailingly dismal and between 2007 and 2019 they were the weakest of all the 350-plus price indices produced by RCA globally.

In contrast, the industrial/logistics property sector — predominately located outside of London – has been a major winner in the last three years. Prices have risen at at average of 11% a year over this period, compared with 7% for the wider UK commercial market. Much of these gains have been driven by the weight of investment capital piling into the sector, pushing yields down to record lows and prices to all-time highs.

james.wallace@realassetmedia.com