Will 2013 be the year the UK property market starts to recover?

Many people are still struggling through the economic downturn and finding it hard to believe that much will improve, especially as there has been little change within Europe. Despite this there is clearly still some optimism as Deloitte has just released a report predicting that the UK office market will bottom out within 2013. 

This bold prediction made by Deloitte has been founded on investors starting to broaden their horizons outside of the UK’s prime real estate. Over previous years investors have primarily targeted the top-end market within the major cities, and particularly the London market, often focusing on offices in the West End. This is due to London remaining one of the few places within Europe that has maintained value, attracting many investors as a result. 

It is thought that overseas investment will increase over 2013 as many new investors are eager to enter the UK market. Last year £20 billion was invested in residential and commercial property by overseas parties looking for more secure assets, however with potentially more investors one can expect the availability of prime Grade A space to decline significantly, making secondary space a more viable investment choice. 

According to the Deloitte report the fall in office value throughout the UK will bottom out mid-2013. The UK office value is then expected to rise, although this is unlikely to be noticeable until much later on in the year. This does not mean that values will suddenly soar but rather indicates a slight change in direction in office values. As this change is expected to happen so late on in the year it is thought that office values will be lower in January 2014 than they are now.

Several factors may have ultimately made secondary office space a more tempting investment opportunity, even if a riskier bet to make. Firstly, as values have consistently dropped  – 37% from 2007 – it may be that secondary space has now reached such a low level so as to provide some incentive.  Prime space such as offices in Mayfair and the rest of the West End have become so extortionate that a large percentage of investors are unable to purchase such enormous assets. As a result many investors could be tempted to focus on secondary space in order to stay in the UK.

Eugene O’Sullivan, director at Morgan Pryce, states, “Working in London certainly supports the argument that this is happening. Investments keep growing and the London market is getting stronger as people start to invest in some secondary space, especially if it has development potential.

“Despite this there seems to be little activity outside of London where investors are just not interested. Although there is continued growth of office values within London there is limited evidence in the rest of the UK of anything similar.”

Many will argue that the Deloitte report is a bit too optimistic as although London is thriving and seen as a safe haven both in and out of Europe, other cities in the UK are far from being such a huge success. It is therefore likely that London is going to continue carrying the rest of the country on its back as investors battle for a hold on London space, whether it be prime Grade A or secondary space.

Morgan Pryce is a specialist tenant acquisition agent with offices in Oxford Circus and the City. Morgan Pryce specialises in search, negotiation and project management and works exclusively for tenants.