Prime yields are expected to continue to fall across the UK amid signs that growth in prices is cooling, according to research by Savills.
Prime yields are expected to continue to fall across the UK amid signs that growth in prices is cooling, according to research by Savills.
The global real estate service provider said rents were likely to be driven upwards as availability falls and owners focus on increasing income.
Yields in the West End and City office markets have fallen by 25 basis points to an all-time low level of 3% and 4.25% respectively, the firm's latest Commercial Market in Minutes report says.
Savills said it expected yields to continue to move down across a wide range of subsectors including M25 offices, provincial offices, high street retail, shopping centres, industrial distribution and industrial multi-let premises.
At the same time the annual capital growth rate has slowed from the peak of 12.95% in October 2014 to 11.04% in May. Savills said the market would have to shift its focus from capital appreciation to income return and rental growth.
The report found that most of the top nine regional cities are already experiencing upward pressure on prime office rents due to a 10% rise in leasing activity and a 10% fall in availability over the past year.
Grade A availability has halved in some UK regions, partly as a result of 40% take-up in the industrial sector.
Mat Oakley, commercial research analyst at Savills, said: 'Rental growth is no longer just a London story and while office and retail in the capital remain at the top, an outward ripple of recovery suggests strong prospects for rental growth across an array of sectors and regions. As we have seen before, this will benefit the South East and key regional cities before the rest of the UK.
‘The challenge for investors over the next five years will be finding the asset management and rental growth opportunities that will deliver the best returns. Whilst the best rental growth will continue to come from London, other sectors and regions are also starting to offer solid investment potential however a strong bias toward prime remains.’
