UK commercial real estate returns are expected to halve this year, according to advisory firm Cluttons.
The London-based company predicts a drop in returns for the sector in its Commercial Property Market Outlook.
GDP growth and Brexit fears are creating uncertainty in the commercial property investment market, it said.
Total returns for the UK commercial real estate sector will reach 6.5%, less than half the 13.8% return achieved in 2015 and one-third of the 19.3% achieved in 2014.
Faisal Durrani, Cluttons’s head of research, said the UK commercial property investment landscape was being subjected to some “challenging headwinds”.
“Chief of these is, of course, the risk of a Brexit and the deteriorating global outlook,” Durrani said.
“The uncertainty and nervousness being fuelled by the in-out EU referendum is impacting the value of sterling and the volume of property transactions.
“If the UK were to vote to leave the EU, property values are likely to fall.”
Conversely, if the UK remains in the EU, there may be a rise in the value of sterling, which could make the UK look a lot more expensive than it is now to international investors, Durrani added.
Rental income growth and asset management initiatives should be the main performance drivers for the year ahead, instead of yield compression, according to Cluttons.
While occupier markets are not over-supplied, it said, there is still value to be had in terms of rental growth – especially within the office and industrial sectors – with limited speculative development in recent years and strong occupier demand.
The firm predicts industrial total returns in 2016 to reach 7.5%, overtaking office total returns at 6.6% in 2016.
In 2015, total returns from offices (18.2%) exceeded industrial (17.3%).