The (half a) billion pound question: are we at the top of the market?

I know this tends to happen every year as people try and get their deals away before Christmas, but this time it’s bound to spark renewed speculation over whether it is the last hurrah before we hit the top of the market, certainly for the big-ticket stuff in the hotter markets (if we haven’t reached it already, that is, as Jefferies analyst Mike Prew and others have suggested).

Bilfinger GVA chief executive Rob Bould certainly thinks we might be there or thereabouts. “It feels like we are close to the top of the market with City and West End delivering total returns this year of around 20% driven by demand and rapidly improving rentals,” he notes. “There’s no question in my mind that 2015 will set the new record for total investment transaction volume.”

So does that mean there’s only one direction to go? I’ve not been as quick as some to throw my hands up in the air in anticipation of the inevitable rollercoaster whoosh downwards. My feeling is that this is a market of many parts, some of which - notably the regions - are still on the upward climb, and that the UK remains highly attractive to international investors who see it as a relative safe haven amid all the global volatility. Clearly, there are potential threats, such as the China crisis, US interest rate rises, more eurozone chaos, Brexit - but they could just as easily present opportunities. Moreover, there is still a huge weight of money that needs to be spent and not enough stock to satisfy demand.

That all said, even if this property cycle is different in length to its predecessors, it is still a cycle and we will hit the top at some point. When will that be? The latest forecast from BNP Paribas Real Estate makes for interesting reading. It predicts total returns of 13.1% and capital growth of 8.5% for 2015 and although these figures will fall to 7.1% and 2.7% next year, capital growth will not slip into negative territory until 2018. In short, growth is about to slow significantly, but barring an all-consuming global economic crisis, there could be a way to go yet.

Sheds are shifting

There certainly seems to be plenty of growth potential in the industrial market. As we report in our mega Sheds supplement, we’re still not seeing huge volumes of speculative shed development and, as everyone knows, a sure sign the top of the market is nigh is when developers start chucking up spec buildings left, right and centre.

Few sectors are in as rude health as industrial right now. Lettings activity is buoyant, rents are steadily rising and developers are becoming increasingly bullish.

It’s not all good news. Banks remain reluctant to lend on spec development even when the fundamentals stack up. It would be good to see them relax their stance given the pent-up investment demand for stock, but not too much, of course - or we really would have to start worrying about hitting the top of the market.