Property Market Review – August 2021


INVESTMENT IN STUDENT ACCOMMODATION NEARS £2BN IN H1

The latest data from Knight Frank shows that investor appetite for purpose-built student accommodation (PBSA) was strong in H1, despite the sector being adversely impacted by the pandemic, with restrictions limiting international travel and disrupting study for a large proportion of students. The sector is in a strong position to bounce back as face-to-face teaching resumes and a pursuit for the ‘university experience’ incites students.

Total investor spending for the first half of the year reached almost £2bn, as deal volumes rose, and investors looked beyond short-term disruption. Cumulative deal volumes to the end of June were 47% higher than the same period last year and 4% higher than in 2019. Recent UCAS data shows increased optimism for the scale of demand this autumn, with year-on-year rises evident from both UK and overseas applications.

Summarising the uptick in investment transactions, Knight Frank believe it shows that investors, ‘have confidence in the sector’s ability to deliver long-term, stable income streams. It also reflects a wider pivot which has taken place over the last 18 months, from institutional investors towards residential assets across all age groups. Rising student numbers and ongoing low supply ratios in many university cities are also driving investor demand for PBSA.’

INDICATORS POINT TO IMPROVING MARKET SENTIMENT IN Q2

The newly compiled Commercial Property Survey from the Royal Institution of Chartered Surveyors, for Q2 2021, clearly highlights an improvement in overall market sentiment, with 56% of respondents currently feeling that market conditions are consistent with an upturn, this is an increase from 38% in Q1 this year.

The industrial sector continues to experience sharp growth in interest from both investors and occupiers. Respondents to the quarterly survey refer to a continuation in the sharp contraction in availability of leasable industrial space, with the net balance falling deeper into negative territory at -48%, compared with -39% in Q1. Over the next year, respondents expect strong industrial capital value growth across all UK regions.

Encouragingly, trends in demand in the office sector seem more stable than the previous quarter. Although both secondary and prime retail values are predicted to decline, projections are less negative than in previous surveys. Retail availability continues its upward trajectory. Across the retail and office sectors, returning net balances of +52% and +40% respectively in Q2, were recorded.

Demand varies widely at a sector level, with current sector net balances measuring +63% for industrials (versus +57% in Q1), -3% for offices (versus -34% in Q1) and -25% for retail (versus -55% in Q1).

In what the report declared a ‘noteworthy development‘, capital value projections are now only ‘marginally negative for hotels‘, with the latest net balance shifting significantly from -47% in Q1 to -4% in Q2.

Rising student numbers and ongoing low supply ratios in many university cities are also driving investor demand for PBSA

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Commercial property currently for sale in the UK

  • Regions with the highest number of commercial properties for sale currently are South West and North West England
  • Northern Ireland currently has the lowest number of commercial properties for sale (26 properties)
  • There are currently 1,324 commercial properties for sale in London, the average asking price is £1,550,639.

 

Region No. properties AVG. asking price
London 1,324 £1,550,639
South East England 1,143 £2,074,320
East Midlands 745 £1,007,808
East of England 733 £633,795
North East England 777 £349,285
North West England 1,270 £446,614
South West England 1,516 £536,991
West Midlands 1,137 £488,318
Yorkshire and The Humber 1,117 £316,941
Isle of Man 51 £486,457
Scotland 1,102 £304,831
Wales 755 £422,476
Northern Ireland 26 £412,121

 

Source: Zoopla, data extracted 19 August 2021

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Commercial property outlook

Occupier demand – broken down by sector

  • A headline net balance of +16% of contributors reported a pick-up in overall tenant demand over Q2, compared to -5% in the previous quarter
  • A net balance of +63% reported an increase in demand for industrial space
  • Retail and office sectors remain in negative territory at -25% and -3% respectively.

 

Source: RICS, UK Commercial Property Market Survey, Q2 2021

Availability – broken down by sector

 

  • There is a continuing drop in the availability of industrial space, with the latest net balance falling to -48% in Q2
  • Availability remains on an upward trajectory for office and retail, returning net balances of +40% and +52% respectively in Q2.

 

Source: RICS, UK Commercial Property Market Survey, Q2 2021

All details are correct at the time of writing (19 August 2021)

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It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK.