Savills: Non-domestic players set to boost UK volumes but ‘Brelief Bounce’ unlikely

Some non-domestic institutional investors are likely to now re-enter the UK market cautiously now that the General Election has passed, says property agents Savills. But continued uncertainty around Brexit and structural change will limit the up-side for UK property in 2020 in terms of pricing and transactional activity.

As it unveils its 2020 cross-sector forecasts, Savills notes that it has seen remarkably little distress in the property market since 2016 (with the exception of the retail sector), with many markets functioning at normal or above-normal levels.

A ‘Brelief Bounce’ may therefore not be as forthcoming as some may expect, says Savills, as where prices have fallen substantially this has been less linked to political uncertainty and more to structural change.

Brexit uncertainty

While retail property has undoubtedly been affected by Brexit uncertainty, according to Savills the most significant contributor to falling prices and transactional volumes in the retail sector has been eCommerce and omni-channel retailing, rather than a lack of consumer confidence (which Savills observes has been relatively stable).

In the mainstream residential property market, meanwhile, the weakest performing areas have been those where household affordability has been stretched and economics are expected to continue to drag on the market, regardless of an end to Brexit-related uncertainty.

The equity driven prime central London market will be the exception, with price growth projected to reach 20.5% over the next five years.

James Gulliford, Savills joint head of UK investment, commented:

Despite the Conservative Government receiving a mandate to deliver Brexit, uncertainty over the UK’s relationship with the EU will not immediately diminish, and property will continue to contend with a wide variety of old and new structural, economic and legislative changes throughout 2020 and beyond.

“However, we do expect higher deal volumes next year, particularly in the office and logistics markets, as a number of non-domestic institutional investors that were deterred by Brexit uncertainty re-enter the market, and a rise in opportunistic investor activity in the retail sector, as some buyers now see some assets as competitively priced.”

Key rural trends Savills predict

  • The Government’s agri-environment policy will take time to catch up with the emerging private market demand for environmental offsetting services such as carbon storage, biodiversity gain from planning and nitrate neutrality, meaning land managers should start looking locally at what might be available to them;
  • Landowners with long-term horizons are still in a good position to unlock the latent value of their assets by playing the odds on development potential, or waiting for the capital value uplift on the cessation of a protected tenancy; and
  • The global attractiveness of UK amenity farmland remains undiminished as a home for wealth, given its security of property rights, privacy and exclusivity.