UK prime commercial property investment yields stabilising
8 May, 2009, London
Prime yields for UK property have stabilised in the last two months says Cushman & Wakefield with 21 of its 24 key yield outlook indicators flat-lining between March and April. This is the most stable picture since March 2007 with some rates for shops, offices and distribution properties all unchanged on their 2008 closing and the first signs that yields are under pressure to fall in the most demanded segments of the market.
In its new Business Briefing on the UK Property Investment Market, Cushman & Wakefield says that although the market for prime commercial property is stabilising, capital values are still falling as assumptions on sustainable rents and occupancy are hit by the recession. Moreover, yield trends at the secondary end of the market are still negative.
Cushman & Wakefield expects more of its 24 key prime yield indicators to stabilise in the next two to three months and a gradual improvement in investment activity as more purchasers accept that the best value opportunities are now to be had. UK Q1 investment volumes at £3.6bn was the lowest three month total since Property Data’s records began in 2000.
David Erwin, head of UK capital markets, Cushman & Wakefield, said: “Investors are likely to stick with property as a defensive play in the short term. Core assets with solid income characteristics in markets with low vacancy and limited pipelines will be most in demand and I expect we will see further disparity in pricing between these and other assets. I expect we will also see a disproportionately higher level of forced secondary sales and so the pricing floor here is probably some way off.”
David Hutchings, head of research EMEA, Cushman & Wakefield, said: “The UK is looking very attractive at the moment to overseas investors who can take advantage of the weak currency. Our commercial property market is among the most sophisticated and liquid in the world and its medium term fundamentals are sound. The UK is also almost certainly the most advanced market globally in the cycle and has received a very heavy fiscal stimulus. Hence even though the occupational markets have further pain to come, we expect the commercial property investment market to stage the first and earliest significant western European recovery, with signs of this likely to be evident before the end of this year.”