Savills : UK real estate fundamentals remain strong, despite macro uncertainty

According to the international real estate, while macro-uncertainty remains over the UK's future outside the EU, the fundamentals of real estate remain strong with vacancy rates across most sectors and geographies remaining historically low. In Central London, whilst the office vacancy rate rose 230 basis points to 7.2% in 2020 it remains below the last high water mark of 9.6% in 2009. In regional office markets a lack of development and continued take-up of prime buildings has seen Grade A vacancies fall to just 3%. In the logistics sector, meanwhile, Savills says that the vacancy rate has reached its lowest point for three years at 5.7% as the occupational market saw record take-up of 50.1m sq ft in 2020, driven by a boom in e-commerce. Even in the retail sector, which has been one of the hardest hit in the past 12 months, the vacancy rate for retail warehousing remains lower than logistics at just 5.5%, says Savills.

The commercial investment market also saw a relatively strong final quarter, when £12.4 billion was transacted. This took total investment volumes for the year to £41.8 billion, a fall of 22% on 2019 says Savills, but a strong performance given the market was in all but hiatus in Q2 which saw the lowest quarterly investment volume since 2009, at £4.2 billion.

In addition, new business registrations increased by 30 per cent in the four weeks to mid-December 2020 compared with the same period last year, and the annual growth rate has been above 10% since June, indicating that additional requirements should come to the market in due course, according to Savills.

James Gulliford, joint head of UK investment at Savills, says: 'Given the events of 2020, overall the investment markets finished the year better than we may have expected at the halfway point. The occupier markets remain reasonably strong, with activity continuing in many markets. Even with some uncertainty still needing to be resolved, we should therefore see a stronger 2021 in terms of investment volumes.'

Kevin Mofid, director, Savills commercial research team, adds: 'Recessionary times often act as a catalyst for new business formation as some of those made redundant decide to strike out by themselves, but the exceptional events of 2020 appear to have given the figures an extra boost after some people used lockdown to consider their future and make the leap to found the business they've always dreamed of. Whilst these new registrations show economic promise it will take time for any meaningful growth to show in floorspace requirements, but when those requirements do emerge it's likely they will find an undersupplied market, whichever sector they're in.'