Occupational property demand

Citation

(1998), "Occupational property demand", Property Management, Vol. 16 No. 3. https://doi.org/10.1108/pm.1998.11316cab.008

Occupational property demand

Occupational property demand

Keywords Property market, Rent

Economic output has increased 18 per cent since the end of the recession ­ an annual average rate of 3.1 per cent per annum, well above the 25-year average of 2.1 per cent per annum. With high economic growth in 1997, occupational property demand is, not surprisingly, strong, says Grimley's latest research, "Economic and Property Market Review".

The Grimley prime rent index showed 8.6 per cent per annum growth up to the end of December 1997. Over the last six months the annual equivalent rate was 9.2 per cent. Prime rents 12 months ago were rising at 5 per cent per annum.

Rental growth is currently highest in the office sector owing to strong demand in Central London and parts of the South East. Retail growth is also high although this is more broadly based than in the office market.

The survey predicts that the five increases in interest rates over the last eight months will be felt throughout 1998 and 1999. Relatively high interest rates, the strength of sterling and the South East Asia crisis will cause markedly lower economic growth in 1998 and 1999, particularly affecting manufacturing industry in 1998. However, with employment continuing the strong growth seen in 1997 for much of 1998, occupational property demand will stay healthy in 1998 before a marked slowdown occurs in 1999 and 2000 (see Table IV).

Stuart Morley, Head of Research at Grimley, says, "Property is historically a late performer. Despite the pronounced economic slowdown which will occur over the next 12 months, we expect employment growth and occupational property demand to stay reasonably buoyant in 1998 so that this year will see the peak of the current rental growth property cycle.

"We expect average property returns of 9.5 per cent per annum over the next five years with best performance in the office and industrial sectors (slightly over 10 per cent per annum returns). Lowest returns are likely in 2000 and 2001 with returns falling to 6-7 per cent per annum.