The number of completed commercial property developments in the UK during 2012 was half that of a year before.
The number of completed commercial property developments in the UK during 2012 was half that of a year before.
This was the main finding of the latest IPD UK Developments report, produced in association with Gerald Eve.
The report said completions were down sharply as the stalled UK development pipeline delivered some of the lowest level of new space to the market in the last 30 years.
The report, which measures the performance of developments recorded in the IPD UK Annual Property Index, represents over 50% of the UK commercial property market, and found that just 40 commercial property developments were completed in 2012.
Over the last five years, developments in the UK have suffered from a lack of finance and the risk-averse mentality of investors. Only those with means of privately sourcing capital, or those able to pre-let, have been able to initiate new building plans.
However, despite the low levels of completions, returns for finished assets rose to 7%, their highest since 2007, as demand for the scarce supply of new and refurbished space drove up returns.
UK commercial property, in comparison, returned 3.4% in 2012, bonds 4.7%, and equities 10.2% (JP Morgan UK 7-10 yr, MSCI UK).
The spread in returns from the report highlights why it is difficult for lenders to commit to providing development finance. For all developments between 1983 and 2012, the top 25% of assets returned 10.5% on average, the bottom quartile just 0.3%.
Retail developments delivered the best returns for the year, with an IRR of 33.5%, from an equal mix of development types, while offices returned 7.6%.
