Mark Davies: Health of commercial property market bodes well for wider economy

Mark Davies of Arnolds Keys. Picture: SUPPLIED.

Mark Davies of Arnolds Keys. Picture: SUPPLIED. - Credit: Archant

The last few months have seen the economy building up a head of steam, although several global uncertainties remain: continued low oil prices; the slowdown of the Chinese economy; the issue of migration; and the EU.

The government has acted to tackle the overheated residential housing market by targeting reliefs for buy-to-let landlords. But at the same time, last month's budget was well-aimed at supporting businesses.

In spite of uncertainty at macro level, commercial property continues to be a hedge for the stock market, and investment performance continues to strengthen. In the absence of prime-grade stock, there is an appetite for secondary-tier commercial property with good tenants on longer leases.

Investors are starting to anticipate rental growth and build it into their valuation of investment purchases, driven by lower vacancy levels, with increased competition from occupiers putting pressure on rents at review/renewal.

Meanwhile in the autumn the chancellor made permanent the permitted development rights, not only enshrining the previously temporary right to change use from office to residential (importantly without any affordable housing requirement), but bringing new classes of buildings into the regulations' reach.

There are stipulations, and grounds for local objections, but the intention is convert commercial buildings located for historical reasons in line with the area's character.

We are seeing an increase in the number of larger sites being sold - notably large sections of previously unloved parts of the city – off King Street, and on the north side of the city centre around Duke Street and the inner ring road. If the health of the commercial property market is an indication of the prospects for the wider economy, then this confidence bodes well.