UK commercial property returns at 25-year high

Investors in UK commercial property could see record returns this year. Research carried out by M&G Real Estate has shown that estimated returns this year will be 20% more than at any time during the past 25 years. 

The report, just published, forecasts that consistent investment from both the UK and overseas investors and steady investor confidence combined with an unusually liquid market will result in these high returns. 

With imminent concerns over Europe’s economy, and the UK’s growth stronger than that of North America, confidence in the UK commercial property market is at a record high. Occupier demand is one of the driving forces behind the trend, specifically in the office and industrial sectors. As a result vacancy rates are low and rental rates are increasing. 

The suspension of construction of commercial – as well as residential – property during the years following the 2008 crash has led to a shortage of property on the market in recent years. A recovering economy and lack of appropriate supply are also factors leading to the current state of the investor market and, according to the research, have resulted in capital values increasing by 6.7% during the six months up to August this year. 

Interestingly, the report noted that prime real estate property has in fact been lagging behind secondary property in the south east of England, while elsewhere in the UK prime assets performed better. However, the report acknowledged that higher-quality secondary assets throughout the UK were catching up with prime assets as the appetite for risk increases, and as some investors wish to avoid the current high capital values of the south east. 

The head of research at M&G Real Estate noted that at present, and indeed for mid- to long-term yields, the area surrounding London is a good option, specifically offices, and particularly where there are funded and targeted infrastructure projects planned or underway. 

This news was brought to you by Morgan Pryce, a specialist tenant acquisition agent with offices in Oxford Circus and the City. Morgan Pryce specialises in search, negotiation and project management and works exclusively for tenants.