GVA - Economic and property market review

According to commercial property consultants GVA, economic output in the UK increased in Q4 by 0.5%. During Q3, construction output grew by 1.6%, while manufacturing output slowed in growth to 0.3%.

Throughout 2014 there was strong employment growth, shown through the increase in the UK’s workforce by 512,000 in comparison to the previous year during September to November. Consequently, the rate of unemployment dropped in November to 5.8%; a decrease from 2013’s 7.1%. The report forecasts a slower fall in unemployment during 2015.

There was an abrupt decline in CPI inflation to 0.5% in December, regarded as mainly due to the steep dip in oil prices. Yet, in comparison to the rest of Europe, wage growth is speeding up and will continue to do so in the coming year. Due to falling inflation, the first base rate rise will likely occur in Q4 of 2015.

Trends such as real wage growth, rapidly increasing employment and falling inflation will determine 2015 occupational demand for commercial property. The consumer will still be a key factor in growth, however the report suggests that the Europe is the biggest risk to the UK’s growth as its main trading partner due to the possibility of deflation and a stalling of growth.

Economic growth is forecast to be in line with the growth in 2014 at 2.6%.

Annual office take-up in central London was at its highest since 2001 at the end of 2014, with high demand for new space disrupting the schedule for development. Central London office rental growth rose by 11.4% during 2014 and is expected to continue to grow strongly in 2015.

Take-up in the regional office market was incredibly high in Q4 2014, with the total reaching 23% higher than the five year average.

Retail sales through 2014 were consistent, though began to slow towards the end of the year. The highest demand was still in prime locations, particularly central London. There has been an improvement in vacancy rates, though the report infers that there is still a north-south divide. Central London retail rental growth is forecast to slow during 2015.

Decreased supply of space and high demand from retailers and manufacturers has impacted rental growth. Regardless, growth in industrial construction output was high in 2014, with the warehousing subsector leading the way. Industrial showed the strongest growth in rental outside London of the three sectors.

GVA reports there to have been more than £20 billion transacted in Q4 2014, resulting in £62 billion-worth of UK investment transactions during the whole year. The biggest buyers were those from overseas and UK institutions.

The report forecasts that strong competition should continue to be attracted due to good quality stock, which should drive higher yield compression. It also highlights that there will be a continual of high achieving in the distribution sector during 2015 alongside high occupational demand which is largely dependent on internet retailing.