What does 2016 hold in store for UK real estate?
14 January 2016 by Jason Torrance
2015 was a record year for investments in the UK’s commercial property sector and the forecast is that 2016 is set to follow suit. CBRE, the global real estate adviser, predicts that there will be around £70 billion invested in commercial property in the UK in 2016 with estimated total returns at approximately 10.1%, and although these returns will decline good returns are expected through to 2020.
Industrial property will be at the forefront of these high returns, accounting for 9.5% per annum (on average) for each of the next five years. Retail property is expected to yield returns of approximately 7%, whilst the office market contributes to around 7.4%. An outlook analysis report produced by Savills suggested that investors should focus more on rental growth rather than capital growth and predicts “good quality refurbished office space in the UK’s top seven major cities will experience stronger than average rental growth”.
Whilst foreign investment in the capital has been a driving force for a number of years, outside of London this has now increased, with 32% of transactions attracting foreign investors from over 30 different countries, having previously accounted for only 20% of acquisitions. In particular, Asian investment has been higher recently than in the past 10 year average, with European and US investment reducing as a result of the possibility of Europe offering relatively better value than the UK due to its recovery. Indeed, Savills have indicated that the potential referendum on membership to the European Union will be the most destabilising factor for the UK’s commercial property market over the next couple of years. It is still expected that strong foreign, diversified investment will continue in London, but it is predicted that interest in the South East and other big cities will increase in office and industry property markets in particular.
An important piece of draft legislation due to be published in January and one which investors will be extremely interested in is that regarding stamp duty land tax rates. These increased rates of SDLT will come into effect from 1 April 2016 and mean that for all residential purchases of over £40,000.00 a surcharge of 3% on the already applicable stamp duty land tax will apply, hitting buy-to-let landlords or purchasers with more than one residence. The possible exemption to this surcharge will be for companies who already own 15 or more properties. Experts predict that this will inevitably lead to a scramble for buy-to-let properties before this higher rate of stamp duty land tax comes into force and may also see an increase in private rents.
Further issues for landlords to consider in 2016 include the reduction of a number of their tax privileges including the wear and tear allowance, a limit to overall lending to buy-to-let borrowers and new regulations concerning illegal immigrants, which will mean landlords incur a £3,000 fine if their tenants do not have the right to rent in the UK. These changes have led to a prediction from the Council of Mortgage Lenders that the number of new loans given to landlords will fall from 116,000 in 2015 to 90,000 by 2017.
If you are a landlord or tenant and require specialist advice on these issues or any others, Fisher Jones Greenwood’s Commercial Property team offers specialist services to landlord and tenants alike. For further advice, please contact us and we would be happy to assist.