Rob Martin, director of research at Legal & General Property, has forecast improved UK commercial property returns in 2013, with a continued polarisation between the best and worst performing assets.
Rob Martin, director of research at Legal & General Property, has forecast improved UK commercial property returns in 2013, with a continued polarisation between the best and worst performing assets.
Martin believes economic growth is likely to remain sluggish but that there are signs that property returns are set to improve.
An easing in commercial real estate credit markets and the persuasive valuation case for UK commercial property should mean that prices for the market as a whole will be broadly stable in the next 12 months, in contrast to a fall of 3% over 2012, according to IPD's quarterly index for all property.
Total returns are therefore likely to be dominated by income return, currently at 6%. Given the attractive level of yield, whilst sentiment is likely to remain relatively volatile, LGP sees upside risk to medium-term total returns from a positive repricing of property as an asset class.
'Three key drivers underpin our more positive outlook for 2013. First, central banks look determined to boost growth and this has fed through to our economic growth forecasts, which have been marked higher,' Martin said.
'This gradual improvement should translate into greater occupier confidence in bearing the cost of moving into modern, well-located buildings. But given relatively weak growth in absolute terms, the majority of new lettings are likely to be moves from substandard, poorly-located buildings rather than outright expansion.'
