This time last year the economy in the UK was looking uncertain, having not long avoided a triple-dip recession. However, in the London commercial property market faith overcame caution, and with the instability in Europe, the UK capital was soon to be seen as the safe place to invest by overseas investors, including state and pension funds. Analysts see no reason for this pattern to change any time soon. Europe, including the big players, is still limping along, with other countries on their knees: while in London there are more tenants than properties, meaning both good rental and capital figures.
Analysts and fund managers are in fact predicting returns of 10% or even more for investors during the coming year, which will contribute to the increasing proportion of commercial property that makes up investment funds, which is creeping up to pre-2007 levels. Significantly, it is predicted that capital growth will make up a good part of the healthy returns – as previously income was the main source of growth – possibly even with a 50/50 split this year.
The IPD Commercial Property Index shows an 8.9% return in 2013, so it would not take a significant increase to push returns into double figures.
Some fund managers are wary of putting all their eggs in the London basket and are also looking to other major cities throughout the UK such as Manchester, Birmingham, Leeds and Liverpool to spread their risk, particularly if they are aiming for a specific rate of return in either income (rent) or capital (value). Significantly, it’s not just the city centres in the regions that are of interest, but also industrial and office sites further out, as companies are increasingly setting up outside the often more expensive city centres, also allowing tenants to take advantage of good landlord offers.
Watch this space (it might increase in value this year!).
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.
