Over the last 12 months, sales of commercial property in the UK have grown to the highest level since the credit crunch with a total of 115,400 sales which is a 6% increase on last year’s figures.
In 2008/09 there were 92,900 sales but this increased by 26% however, the levels are still not as high as they were in 2007/2008, where there were 139,000 sales.
Commercial law firm EMW have analysed the figures and it shows that England is currently in the lead when it comes to market throughout the country. In England alone, there were 97,500 transactions which accounts for 85% of the total market within the UK. The report shows that compared to other investments, the high yields seen on commercial property still manages to attract investors from the UK and abroad. Due to the high yields and interest rates sitting at an all-time low, sales figures are now back to levels which were common before the financial crisis hit.
Overseas investors are also showing an increased interest because lease terms are extremely encouraging. There has also been an increase in lending from the banks and this has increased activity in the market as they are now willing to fund purchases that have a higher loan to value ratio. Without this kind of funding, investors were struggling to make their investments work.
The most recent Commercial Market in Minutes report which is released by Savills suggests that there is likely to be a continuation of the downward pressure on prime yields in the six sectors of the market which will help income and rental growth to continue pushing the final return total.
There is an expectation that downward movements in prime yields will return across high street retail, shopping centres, M25 office, provincial offices and industrial distribution. When compared to May of 2014, West End and City office prime yields are at the lowest levels seen at both 3% and 4.25% respectively.
When the UK began its economic recovery, investors relied on an upturn in capital value to create total returns, but now there will be more of a focus on income return and rental growth. The rate of capital growth has begun to slow down which is a sign that the market has moved on from the peak it experienced in October 2014 of 12.95% when compared to the current level of 11.04%.
London is no longer the only location benefitting from rental growth despite office and retail remaining at the top. This recovery is being seen in a number of sectors and regions also with the South East and other important regional cities benefitting.
There is now upward pressure being seen in many of the top regional cities and this supports the report as there has been a 10% increase in leasing movement along with 10% decrease in the availability over the last 12 months.
The industrial sector is also expected to experience strong growth as take-up was up by 40% in 2014, with Grade A availability being halved in many UK regions.
Over the next five years, the main challenge for investors is to find assets and rental growth that will offer the best returns. London will still offer the best rental growth but other regions are likely to show excellent investment opportunities.
This article was contributed by London commercial property law firm Fletcher Day