The all-sector UK prime average commercial property yield fell in July to 5.13% - the lowest level since March 2020 and the seventh consecutive monthly fall, according to property services firm Savills.
With downward pressure on yields still visible in six sectors the international real estate advisor says that it may well fall again, showing that momentum in the UK commercial property market continues to build.
Total UK commercial property investment volumes reached £31.4 bn at the end of July, a 32% increase on the same period in 2020 and 4% above the five-year average. Encouragingly, the three-month rolling total for investment volumes reached £16.1 bn for May to July 2021, a 38% increase from February - April 2021. The total number of deals recorded between January and July 2021 also rose 18% compared to the same period in 2020.
Richard Merryweather, joint head of UK investment at Savills, commented: 'Impetus behind the investment market continues to grow, and we’re seeing much more activity during August than we would usually see in a typical year as pent-up demand is able to return to the market.
'The industrial sector accounted for the largest proportion of total investment to the end of July, reaching £9.7 bn, equating to 31% of total investment in the year to date. However we’re seeing an increase in interest across all sectors as optimism that we’re now past the peak of the disruption associated with the pandemic has grown.'
Clare Bailey, director in Savills commercial research team, added: 'Although the big ‘return to the office’ is going to come for most workers in some form in September, investors are confident that the office will still play a crucial role in work life, with regional office investment volumes for this year as of the end of July increasing by 40% compared the same period in 2020.
'But providing the type of space that occupiers want (high quality, well-connected with good ESG credentials) is crucial. We also need to see the market address the need for more ‘affordable’ workspaces: as more new businesses have been founded over the pandemic there’s a need for cheaper, innovative spaces that help them expand in many of the UK’s big cities.
'There is an opportunity here for canny investors to repurpose older buildings that are already in the right places in a sustainable and cost-effective way to deliver offices which foster innovation and growth.'
