Yields stabilise in UK market

Prime yields for UK commercial property stabilised at 7.35% across all sectors in May, according to the latest research from real estate adviser Cushman & Wakefield. This is the highest level since 1992. Only prime yields on regional out of town offices remained under outward pressure during the month, the adviser added.

Both demand and activity improved during the month in tandem with an improvement in the financing environment and signs that a select number of banks are regaining a taste for lending albeit still at higher than average margins.

Although occupational markets remain under some pressure, the adviser sees 'some more encouraging signs' that certain tenants are ready to activate demand requirements to take advantage of their strength in today's market. 'Some stronger retailers are taking advantage of relative value to expand their store portfolios while recent data on footfall and sales has been encouraging,' the report concluded.

In the London office market, rising availability of space is pushing down rents but there has been an increase in the number of requirements as corporates look to take advantage of value and relocate or consolidate their operations.

David Erwin, head of UK capital markets, Cushman & Wakefield, said: 'Although from a low base, there is an improvement in investment demand and activity. This is centred around prime assets with solid income in core markets with low vacancy and limited pipelines. The whole feel of the market is more positive with a real depth of bidders, particularly across London and for prime retail assets both in and out of town. Risk aversion though remains high among investors with letting risk and weaker tenants being shunned and an increasing inventory of poorer secondary stock with few buyers and reluctant financiers.'

David Hutchings, head of research EMEA, Cushman & Wakefield, said: 'The UK’s property fundamentals remain sound and its one of the most advanced markets globally in the current cycle. Overseas investors are increasingly taking advantage of the weak currency to pick up primes assets at good relative value. They can see that although the market has not yet bottomed out, as a medium term play, this is now the window in which to move to benefit from what will almost certainly be the earliest European recovery market.'