Growth in the size of the UK economy in terms of GDP has averaged 1.3% (on an annualized basis) till Q2 2019. The economic growth in the UK remains modest at 1.2% in 2019.

The UK commercial real estate market will continue to support demand for both occupational and investment stock because of its strong fundamentals of low unemployment, currency advantage and the tight supply of occupational and investment stock.

Provided the tight supply in the occupational market, prime rents are likely to come under upward pressure in certain markets this year. Uncertainty about Brexit has kept investors careful in spite of ample liquidity and relatively high yields.

However, demand for the office sector fell during Q3 2019, only a modest decline. Meanwhile, the demand for industrial space continued to rise, although the increase was only marginal. Alongside this, the availability of leasable space is unchanged across the industrial sector, marking a slight departure from the uninterrupted run of declining supply being reported since 2013. At the same time, vacancies are still rising sharply across the retail portion of the market, while the availability of office space also marks off up again. This prompted another increase in incentive packages on offer to tenants in both instances

Tenant demand is healthy across the UK, with little indication of weakening sentiment. Lack of available stock is one of the barriers to commercial real estate in the UK.

Key Market Trends

Growing Investment in Industrial and Logistics Real Estate in the UK

The UK provides a stable and secure political environment for commercial property investors across the globe by earning their trust and confidence. There is a huge investment by investors in industrial and logistics real estate due to its rising demand in the country.

The industrial and logistics real estate market continue to be extremely robust. Leasing and investment are showing marginal growth at the beginning of 2019, although rents continue to rise across the country.

There is increasing demand from people to buy in prime locations near economic centers blended with growth in online-centric companies which has put pressure on industrial and logistic investors and developers in the country.

The East Midlands has the highest volume of development, with four constructions of over half a million square feet to be completed in 2019. In the South West, all four new industrial and logistic developments are being constructed in Bristol.

Declining Vacancy Rates and Increasing Rents of Office Spaces in London

Rents for new and refitted Grade A space in most parts of the West End, Midtown, South Bank, City, and City fringe are expected to rise by 2020. This is mainly driven by low vacancy and stronger than anticipated post-Brexit vote occupier demand. Due to disparity in real estate costs, occupiers are migrating towards eastward regions to the City and City fringe sub-markets where the office spaces rents are cheaper.

In London, availability fell for the second consecutive quarter reflecting a vacancy rate of 4.56%. The relative lack of speculative space in the near-term pipeline will most likely keep vacancy rates in check during 2019. In the UK regions, office availability fell to its lowest level for 13 years. There is now a vacancy rate of 7.1%. The supply of new space is particularly low and, as in London, will be placed under downward pressure by the tight pipeline. The vacancy rate for new and refurbished space is just 1.3%.

Competitive Landscape

The commercial real estate market in the UK is fragmented due to a low level of market share concentration. UK real estate technologies will continue to mature in 2019. It continues to be a prominent technology and innovation funding and experimentation zone. The industry is highly competitive. UK’s property market is extremely attractive to investors both at the domestic and international levels. Property tech is a growing sector in the country as it is easier to invest, buy and sell through them than the usual process.

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