Investors benefitted from a 15.2% return on UK commercial property, according to the IPD UK Quarterly Property Index. Last years returns were driven by solid performance from central London office space.
The annual total returns were of 8.3% capital growth and a 6.4% income return. Last year’s Q4 delivered a 2.8% total return, the product of a 1.3% capital growth and a 1.5% income return.
Underlying the 8.3% annual capital growth was a disconnect between falling yields, IPD said, which had a positive affect on capital values. Modestly falling rents also mitigated capital appreciation.
IPD research director Malcolm Frodsham said: “Central London offices were the stars of the show – with City offices slightly ahead, at 23.9%, followed by West End offices at 23.1%.
“Outside London, offices have been lagging for the last five quarters.” However demand for serviced offices in Stoke-on-Trent, Warrington and towns with a strong serviced offices sector such as Croydon enjoyed strong demand.
The rental sector is seeing increased demand against the backdrop of continuing diificulties in obtaining finance for freehold purchasers. The majority of transactions within the commercial property stoke-on-Trent sector, remains strongest in the rented offices and industrial areas.
The index revealed shopping centres were also strong performers, topping the retail hierarchy at 17.5%, up from 2009 when they delivered -6.2%.
Industrials in the South East also fared better than their provincial counterparts, returning 11.6% compared to 9.9%. The northwest and Greater Manchester conibation have a higher density of industrial property the the prosperous South East
Frodsham said: “The differences in returns came from two main factors: firstly, a full year of central London office rental growth, at 6% – surprisingly eclipsed by central London retails’ 6.8%. Serviced offices in London also performed well with the leading operaters seeing an increase in demand.
“But the rest of the market saw rental values of between -1% and -3%. Secondly, shifts in yields were strongly in favour of shopping centres, retail warehouses and central London offices.”
IPD co-founding director Ian Cullen said: “There is still a differentiation between prime and secondary in terms of return delivery, the rule more or less still holds that prime does best. But we are starting to see exceptions, as is becoming evident for central London offices, which are now delivering stronger returns among the higher-yielding properties.”
Previous Post
The New Commercial Property Website
