Heartwood maintains a positive outlook on the 2016 property market overall, while they recognize that there will be challenges to come in the new year.
The British EU referendum is likely to create uncertainty around UK asset markets, and especially property. Sippetts believes that global security issues and the EU migrant crisis call for a coordinated international response and will, arguably, strengthen the case for Britain staying in Europe.
According to Sippetts, UK commercial property will retain its attractive investment characteristics for international investors -regardless of the outcome of the referendum- because of the UK’s standout legal and political framework.
“UK commercial property continues to yield in excess of other comparable assets and it should continue to attract international investor flows in a low interest rate environment,” he said. North American and Asian institutional investors, such as life insurers and pension funds, have been particularly active, said Sippetts.
According to the Property Investors Bulletin, 50% of investment purchases for UK commercial property were from overseas investors in the year-to-date ended 31 August 2015.
Sippett added that the threat of higher rates and waning international flows into UK residential property, due to slowing Asian growth and emerging market currency weakness, argue that some parts of the property market are fully valued.
Heartwood currently holds a full weighting in the property sector and expects to maintain this exposure, however the firm does not anticipate adding to their exposure in the near- to medium term, “given how far the UK property cycle has progressed.”
Preferred niche areas for Heartwood include office and industrial space, where positive momentum will be sustained by rental growth and ongoing international investor demand. The outlook for retail, which includes shopping centres and (to some extent) distribution centres, is less supportive due to excess supply.
