Commercial outlook for Q3 forecasts stronger returns

Against a backdrop of an improving UK economy, renewed investor and consumer confidence and continuing low interest rates, this increase is due to further yield compression, which is now extending to regional offices and industrials. With an income return of 6.6% for all commercial property, this represents an attractive margin of over 300 basis points above 10 year government bonds.

Overall commercial values are currently 31% below their 2007 market peak and supply remains restricted. Some owners may be reluctant to sell in a rising market, and further upwards pressure on pricing appears inevitable, so now could be a good time to invest in commercial property.

Central London offices remain the market leader with total return forecast of 19% for 2014 with values closing in on peak levels.  The ripple effect is now extending beyond the South East to the best regional offices and the industrial sector which continues to compete with offices as the market leader, while retail lags behind.

John Barrett, Partner and Head of UK Valuations comments:

“Yield compression is now extending to the best regional office markets in anticipation of a return to rental growth. We have seen assets selling ahead of asking price in many instances with good secondary offices in strong regional cities perceived to be offering good value, especially if there are asset enhancement opportunities."
Against a backdrop of an improving UK economy, renewed investor and consumer confidence and continuing low interest rates, this increase is due to further yield compression, which is now extending to regional offices and industrials. With an income return of 6.6% for all commercial property, this represents an attractive margin of over 300 basis points above 10 year government bonds.

Overall commercial values are currently 31% below their 2007 market peak and supply remains restricted. Some owners may be reluctant to sell in a rising market, and further upwards pressure on pricing appears inevitable, so now could be a good time to invest in commercial property.

Central London offices remain the market leader with total return forecast of 19% for 2014 with values closing in on peak levels.  The ripple effect is now extending beyond the South East to the best regional offices and the industrial sector which continues to compete with offices as the market leader, while retail lags behind.

John Barrett, Partner and Head of UK Valuations comments:

“Yield compression is now extending to the best regional office markets in anticipation of a return to rental growth. We have seen assets selling ahead of asking price in many instances with good secondary offices in strong regional cities perceived to be offering good value, especially if there are asset enhancement opportunities."