Real estate market ‘to enjoy robust 2015’

The UK property market should deliver another robust performance this year, according to experts from Deloitte Real Estate, as a result of ongoing rental growth and yield compression.

The business advisory firm’s latest report, UK Real Estate Predictions 2015, indicates that the serviced office sub-sector will perform strongly this year, with both small companies and larger-scale employers opting for flexible space solutions.

Meanwhile, in the retail industry, the study suggests that a growing appetite for convenience stores among consumers may encourage supermarkets to re-let vacant high street outlets.

Construction costs warning

On the flip-side, the research points to the emergence of higher construction costs in the real estate sector.

The report said rising costs may force developers to simplify the design of new projects, source cheaper manufacturing solutions overseas, or make greater use of prefabrication technologies.

Cost pressures may also fuel merger and acquisition (M&A) activity in the construction sector, it is believed, as contractors seek to counter the threat of insolvency.

‘Reasonable’ economic growth forecast

Anthony Duggan, a partner at Deloitte Real Estate, said the UK property market benefited from an “outstanding” 2014, as investments returned to pre-downturn levels.

The pace of growth may moderate to an extent this year, according to Mr Duggan.

But the expert added: “We are confident the UK economy will show reasonable growth, even if the pace will be more measured than last year.

“This will provide a solid foundation for another year of robust property market performance, with rental growth and further yield compression driving returns.”

M&A market heats up

While demand for convenience store space is likely to increase over the coming months, Mr Duggan said ultra-high net-worth individuals are also expected to invest further funds in the UK property market this year.

M&A activity may additionally grow, he said, with investors keen to “deploy capital more quickly and efficiently”.

According to the 2015 report, listed real estate M&A activity could really gain traction this year. A number of new real estate investment trust vehicles might also enter the market.

Supporting deficit reduction

Elsewhere, Deloitte Real Estate’s experts have predicted that non-financial metrics will be more widely adopted in 2015, as data analytics support environmental compliance processes.

The study also indicates that the real estate sector will continue to play an important role when it comes to the Government’s deficit reduction plans.

It is thought that new development opportunities could emerge, as ministers take steps to reduce the state’s land and property holdings.

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