Property predictor 7th January 2014

The UK commercial property market is set for strong performance in 2014 as a widening pool of investors become increasingly willing to move further up the risk curve and capital values rise sharply over the next six months, reports Deloitte Real Estate in nine key predictions.

Deloitte is reporting nine key forecasts for the coming 12 months. They are:

• The economy is on track to see the strongest growth since 2007: The UK economy enters 2014 in far better shape than at the start of 2013, and is now on track to see the strongest year of growth since 2007.

• UK commercial property: expect strong capital value growth in the first half of 2014: The stage is set for a period of strong performance from UK commercial property. With the market picking up significant momentum towards the end of 2013, as a widening pool of investors become increasingly willing to move further up the risk curve, Deloitte expects to see capital values rise sharply over the next six months.

• Taiwanese insurance companies to join the wave of overseas investors targeting the UK: Following significant and increasing inflows from China and the Middle East as well as European investors, the next new entrant into the UK market will be Taiwanese insurance companies which were permitted to invest in real estate outside Taiwan in mid-2013.

• Construction costs to jump in early 2014 as pricing power shifts to contractors: The signs of impending cost inflation are becoming increasingly apparent with estimating departments busy, demolition contractors ‘sold-out’ and contracts for small or complex jobs becoming hard to place.

• Vacancy (finally) starts to fall on the high street in 2014: Deloitte predicts 2014 will be the year that vacancy rates start to fall in certain locations and the revitalisation of the high street begins.

• E-fulfilment battle will drive a sharp increase in retailers’ demand for urban logistics in 2014: For retailers competing for online market share, a key differentiator is how quickly and efficiently they can get their products to their customers. As the delivery promise becomes more important and, at the same time, increasingly complicated, real estate strategies are changing fast.

• 2014: The year that the scale of the public sector property disposals starts meeting the Government’s ambition: After a series of policy announcements, 2014 will finally see the introduction of an annual target for government property disposals, and importantly, a structure under which public sector bodies can achieve this.

• Real estate steps up as a key tool in the battle for talent: While the importance of the physical workplace has been clear to many employers for years, 2014 will see an increasing number looking closely at how well their real estate, location and technology really do support their crucial talent agendas.

• The TMT sector will continue to drive London office demand in 2014: Accounting for 70% of all London office prelet leasing deals in 2013, the TMT sector will continue to play a key role in the London property market and economy in 2014.