According to global real estate advisor Knight Frank, "no period lasts forever," and "a choppy July in the global financial markets reminds us that traditionally, UK real estate has typically gone into a downturn due to an external shock in the macro-economic climate." عقارات للبيع
In 1990, Iraq invaded Kuwait, triggering an increase in oil prices, which slowed development and burst a housing bubble. In 2007, credit markets dried up, causing house prices to plummet once more. The broader economic chaos pulled commercial real estate down in both cases.
Quick Facts on the London Office Market:
The all-property capital growth index increased by 0.9 percent month over month in June, compared to 0.8 percent in May.
The highest capital growth (1.4 percent) was seen in offices, while the lowest was seen in retail (0.3 percent ).
The average return over the last 12 months was 16.7%.
From January to June, investment volume totaled £34.5 billion, up from £24.8 billion in the same timeframe last year.
Fortunately, according to Knight Frank, the causes of July's rollercoaster financial markets - Greece, China stock market crashes, and a drop in tech stocks - do not seem to be destabilizing the global economy, at least not this time. The Euro group is also committed to keeping the currency bloc intact. China's stock markets are unlikely to have drawn enough foreign capital to pose a systemic risk outside the country's borders. The Economist magazine claims that the current valuation of US tech stocks is more justified than it was in 2001, when very few people were making money.
The start of the next cyclical downturn, on the other hand, will most likely mimic this July; that is, a panic in the financial markets will send aftershocks through the global economy, ultimately affecting UK commercial property. Even if this is not the time for the loop to stop, the question remains as to whether the turning point will come sooner rather than later.
The worst period of the downturn for the UK commercial property sector occurred in mid-2009, when the IPD capital growth index reached its lowest point in July of that year. Although some sub-markets have only recently begun to show signs of recovery, it's tempting to think of 2009 as the start of the current cycle. Since July 2009, the IPD capital growth index has risen 37 percent, indicating growth over several years, although with a lull in 2011-2012.
The term'recovery' is no longer suitable for the UK economy and real estate sector, as the situation has progressed well beyond the recovery stage. Last year, GDP increased by a whopping 3.0%, and even if the 2.5 percent consensus estimate for 2015 is met, it will still be remarkable, even if it is lower than 2014. According to IPD, gross returns on commercial real estate are 16.7% on an annual basis, and we are seeing signs of rental growth spreading from London to the regions in the office sector.
"No business cycle lasts forever," says Knight Frank's chief economist James Roberts, "and a choppy July in the global financial markets reminds us that traditionally, UK real estate has gone into a downturn due to an external shock in the macro-economic climate."
IPD capital growth (month-on-month) fell to 0.4 percent in January, but increased to 0.8 percent in May and 0.9 percent in June. As a result, rather than showing signs of losing steam, the market could be considered to be in the middle of its period, with room to change further. This may be due to the increased amount of money aimed at UK regions this year, as well as the economy's strong results.
However, as previously noted, a turning point will occur, and history has shown that the decline begins beyond land. What might be the catalyst for this turning point?
The candidate we believe is most likely to cause the next downturn is the tech industry, which is, ironically, a rising star in the global economy. Even if The Economist is right in forecasting that a tech-driven stock market crash would not occur now, one cannot be ruled out at a later date. The Victorian era's railway share booms and busts show how difficult (if not impossible) it is to accurately value future growth potential, particularly when so much speculative capital is involved.
The burgeoning tech revolution has had a significant effect on UK commercial property, driving up demand for offices in tech-friendly areas (such as London's Shoreditch). Sheds are common among investors looking to profit from the growth of online shopping. A possible tech sector collapse would have far-reaching consequences for land, and this should be high on the list of potential future risks, in our opinion.