Prime-secondary yield gap narrows in UK: C&W

Yields for prime commercial property in the UK have fallen 43 basis points so far this year, against a drop of 146 bps for secondary assets, significantly closing the prime to secondary gap, according to Cushman & Wakefield’s latest report.

Since the summer, prime yields have fallen 7 bps to an average of 5.1% while secondary yields have declined 17 bps to an average 7.8%.

At the same time however, with UK gilt yields falling in Q3, property’s yield advantage relative to bonds has edged up further.

This yield premium is continuing to attract investor demand, says C&W, and is supported by the debt markets where availability of finance is continuing to broaden.

Lenders are look at a growing range of markets and most are taking on more risk to achieve better returns as core pricing stabilises with margins of 125 to 250 bps.

Commenting on the first nine months, David Erwin, Cushman & Wakefield’s CEO of UK capital markets, said: ‘Seldom have we seen the UK property investment market in such good working order. There is a weight of money for all sectors and an excellent equilibrium of supply and demand. This market strength is no longer focused on central London – which remains strong – but has extended to the regions where in particular the logistics and shopping centre sectors are extremely active. We are undoubtedly entering a very busy period for investors and advisers in the lead up to Christmas.’