UK commercial property yields edged down further last month and now average 5.01% across all sectors thanks to increasing demand, according to adviser Cushman & Wakefield’s monthly update on the UK real estate investment market.
UK commercial property yields edged down further last month and now average 5.01% across all sectors thanks to increasing demand, according to adviser Cushman & Wakefield’s monthly update on the UK real estate investment market.
This is 50 basis points down on the year-earlier level and mark the lowest point since September 2007.
C&W said that the downward pressure will likely continue in the coming months but in a more selective fashion as different sectors demonstrate their performance potential, encouraging investors to be more competitive in their bidding.
In the last few months, for example, rental trends in the industrial sector have encouraged stronger demand. Regional offices have also seen a notable turnaround on the occupier side and other sectors are likewise set to pick up speed as corporate investment spurs demand.
Interest will also increase for higher yield and longer lease property if quantitative easing in the eurozone reaches its full potential, C&W predicted.
At the same time, investor buying power is still being boosted by the improving availability of finance, with high competition keeping lending margins under pressure, particularly at the prime end of the market.
Investment supply meanwhile has shown some signs of improving, partly opportunistically as some owners test the market ahead of the busy year-end period. In many cases, however, this increase in supply is from a low base and still fails to match demand.
Loan sales will remain an important source of additional product to bridge part of this gap, with €22 bn of CRE loan and REO sales so far in 2014, more than double the figure seen in 2013 as a whole. Secondary sales are also now increasing as earlier loan and portfolio purchasers start to follow through on their business plan with a more active sales programme.
Cushman & Wakefield’s CEO of UK capital markets, David Erwin, said: 'This year is building towards a crescendo of activity across all sectors of the UK investment market. It's pretty close to a perfect market with equity and debt freely available for the right deals in almost every geography and sub-sector and a steady supply of stock. London continues to power forward and seems to have established itself as the leading destination for truly global capital.'