Most investors have prioritised residential properties over the years because of the upward trend in prices. Residential properties returned to their pre-crisis prices faster than offices. However, more investors across the country have turned to office space as their demand increases. Business owners are always looking for modern and well-equipped spaces for their businesses.
The office space market has been booming in London and the South East of England. However, the trend is spreading to other regions in the country. Investors looking for great opportunities in 2017 should consider the office sector. One benefit of investing in this sector is the guarantee of long-term and steady revenue. When tenants sign long-term lease agreements, property owners are assured on steady high income.
The forecast for the UK office market in 2017
Many investors were worried about the ups and downs in the office sector in 2016. Political uncertainty affected investors’ confidence in the UK market. However, the largest office markets continued to record high leasing activity despite the fluctuations. The Big 6 office markets in the UK include Glasgow, Leeds, Bristol, Birmingham, Manchester, and Edinburgh. The political climate and Brexit process is likely to have significant impact on the office market in the country.
A low GDP growth rate is in the forecast in 2017, which may lead to high inflation and a tight job market. Business owners may respond to these economic trends by postponing their decisions to acquire new office space. Others may consider renting smaller spaces to survive the economic turbulence. Overall investments may decline in the country below the level recorded in the first half of the past year. However, investors will have multiple chances to invest in the office sector in London, which records high yields compared to other markets.
The office sub-markets in the UK will continue to grow in 2017. The upward trend in these markets started in 2015. The high number of new start-ups and small businesses will lead to many refurbishment projects.
The performance of different office markets
The London market has attracted many investors over the years. The average yields from this market are estimated at 5.5%. Despite the high yields, many large companies have been relocating from the West End to other submarkets. The improved transportation network has attracted large companies to city submarkets where rent prices are relatively cheap. The Brexit vote may lower the demand for office space in London. However, the rise in other regions will offset this decrease in demand.
Analysts predict that the number of property pre-lets is likely to increase in all leading markets in the UK. The current move to decentralize government departments will be the leading cause of this change in pre-lets. This prediction and the high PMI index indicate a high demand for office spaces in some leading markets. These markets include Wales, the West Midlands, East Midlands, and East of England. New investors in the office sector should consider buying office space in these markets.
Most regional markets will recover from the fluctuations in 2016 and record an upward trend in 2017. However, the Scotland market may slow down because of the drop in oil prices. The effect of low prices will be evident in Aberdeen and other cities in Scotland.
How do you get involved in the office sector?
You can take advantage of the investment opportunities in the office market in two ways. You can buy office space directly in your preferred markets and start earning rent income. The best properties to buy with this plan are those with long-term leases. Prioritize properties that are defensively placed. This means that you can get new tenants quickly who may pay higher rent than the previous tenants did. Properties with low vacancy rates are also preferable, to avoid losing income.
Despite the potential of earning high returns from the office sector, individual investors face many barriers to entry. The main barriers include the large lot size and illiquidity of office space. The best approach to investing in this sector is through commercial property funds. Such funds invest in different types of property and give individual investor an easier way of getting into the office space market. Consider building a diversified portfolio when investing through commercial property funds.
If you are looking for investment opportunities in the UK, consider investing in the office sector. Analysts predict an upward trend in prices and demand in 2017 and the coming years. If you cannot beat the barriers to entry in the leading markets, consider investing through a commercial property fund.