UK property leaders upbeat despite market turbulence

A new survey of property leaders, commissioned by the British Property Federation (BPF) and Grosvenor, indicates a positive short-term outlook for 2016, and far less certainty longer term. 

4th March 2016

With a new Government approaching the end of its first year in power, an impending London Mayoral election, an EU Referendum and devolved parliamentary elections on the horizon, the start of 2016 seemed like a good time to take the temperature of the real estate industry, and to launch the inaugural British Property Federation (BPF) and Grosvenor Sentiment Survey. 

Full results can be found here.

The survey was conducted from November to December 2015 and was based on the views of 122 BPF members. It took place against the backdrop of slowing global economic growth, rising geopolitical uncertainty and elevated financial market volatility, but before these factors intensified at the start of 2016, the impact of which is not reflected in the results.

Notwithstanding this turbulence, the underlying economic indicators for the UK economy have remained stable and the results showed that in the context of a certain amount of political uncertainty, there are high levels of confidence in the expected performance of the UK economy and the UK's real estate sector over the coming year. Optimism for business growth comes with plans to expand development activity and investment. Two thirds believe their company’s financial performance will be better than last year’s, and 59% of owners and investors intend to increase investment.

Q: Is your company planning to increase or decrease its development activity, or keep it the same in 2016?

Q: Is your company planning to be a net investor or diverstor in property assets in 2016, or keep investment the same?

This short term confidence, with in some cases higher levels of gearing to support investment, comes with a positive view of credit conditions, which in turn are reflected in recent figures from the Bank of England showing credit growth coming back into line with GDP growth.

Property leaders’ short-term optimism is balanced by a relatively less positive, but still optimistic, medium term view of the country’s likely economic performance and the sector's growth, and a clear view emerges of the challenges facing the industry in the next five years.

High construction costs and the planning system are seen to pose the greatest challenges to the industry. The uncertainty caused by the UK’s possible exit from the EU is viewed by owners and investors as a top three challenge to their business in 2016 - a view expressed before the date for a referendum had been set.

Industry plans for new investment are backed by continued enthusiasm for the residential market. The survey indicated that the UK's residential sector is most likely to deliver the best financial returns in the next 12 months, closely followed by the office and industrial markets. Policy makers should recognise that great places are those where people can both live and work, and maintain a focus on measures to unlock high quality commercial development alongside new homes.

In spite of high pricing and external risks, London is set to be the most popular destination in the country for new investment this year by some margin. The Midlands is expected to be the second most popular location for new investment, on a par with the South East & Anglia and ahead of the North West. Interest in the Midlands may be driven by an appetite for industrial space and the Government’s devolution agenda.

Q: Where does your company plan to increase or decrease investment in the next 12 months?

Scotland is more likely than anywhere else to see a decrease in investment by BPF members. Scotland has seen a number of significant policy changes recently, in the Tenancies Scotland Bill, changes to Land and Buildings Transaction Tax, and changes to empty property rates for industrial properties.

With the spotlight on London ahead of the Mayoral election, the single biggest ask from the industry to boost housing supply is that the next Mayor assembles and sells developable land to deliver new homes.

The second biggest ask is a commitment to work with boroughs to unlock investment in new rental homes. The build to rent sector has attracted new interest and activity in the past couple of years, but will require greater political and policy support to unleash its potential.

Full results here.

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