News Full Image By Holt Commercial Director, David Allen

I recently attended an extremely interesting set of presentations
First from an HSBC economist who set about placing the UK economy in the context of a global slow down with consumption still high, the downside being that manufacturing is declining as a proportion.
Given that the UK economy is heavily consumption based, this has kept the economy ticking over but will the way we consume change further as eco and climate concerns influence our demand for manufactured goods with an increased use of recyclable plastics and the way we use cars because of disruptors such as Uber? Similarly retail may be changing from material to experience expenditure.
Interest rates are likely to remain flat but now with significant likelihood of a cut of 25bps before May 2020 or earlier and this would bring a ten-year bond yield down to very low levels indeed.
Post-election optimism rather than pessimism is the feel, but there is still considerable room for business investment growth which will feed through to productivity.  This may come from an increase in public expenditure especially with that being rebalanced towards the regions.
The next presentation concentrated on property equities where it was stressed that there is still significant repricing to take place on a number of property shares where significant amounts of retail is held.
In a lot of other sectors, rental growth is coming through due to constricted supply albeit within the distribution and warehousing sector this may be closer to being in balance.  Tips were for PBSA, logistics and indeed City of London offices and with an expectation that there will be more merger and acquisition activity.  Equally with cheap debt available more companies may be taken private.
Secure income especially in the alternative sector continues to be highly prized and the property fundamentals of its yield are an improvement of that obtained on gilts but with potentially a capital growth kicker still being very attractive.

Finally a review by an Investment Management House suggested that whilst transactions were down values were not necessarily affected other than in the retail sector.  The economy is growing in places especially technology and with the surprising statistic of one million jobs being created since the Brexit vote, which has led to a demand for floor space. The view was expressed that Brexit worries had affected supply more than demand.
The fact that US interest rates actually peaked at 2.5% and not the 4% that everyone else in the room thought might have been the case may well push towards a longer lasting regime of global low interest rates giving rise to lower hurdle rates for investment return.
In summary, retail has not yet reached its clearing price: there would be office rental growth because of restricted supply; the logistics supply might just moderate rental growth a bit; alternatives remain attractive and PRS is here to stay.
Finally, there was a predicted total return of 5.5% for 2020, don’t ignore the ESG impact and that there will be an increasing differentiation between good and bad buildings.

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