Market expert, Guy Morrell, manager of HSBC Open Global Property Fund, has said the commercial property market in the UK has been an extremely unpredictable market during the last few years.
Morrell told Investment Week that between June 2007 and July 2009, the value of unlisted commercial properties across the UK has dropped by almost half.
However, Morell was keen to point to the recent recovery in the UK commercial property market. Writing in Investment Week, he declared: ‘Relative to its historic average, UK commercial property delivered exceptionally strong returns in 2010. During the 12 months to December 2010, nominal total returns were 14.5% according to the IPD UK Monthly Index, which measures the performance of unlisted (direct) property in the UK…This represents a real (inflation-adjusted) return of more than 9%, which is significantly higher than the long-run average real return of that Index of 5.1% per annum.’
Mr Morell also said that a major strength for the UK commercial property market is how well it is viewed from foreign shores. ‘Compared to many other parts of the world, the UK is seen as being relatively safe and transparent, attracting attention from overseas buyers’, he said.
So, how is the future of the UK commercial property market looking? As we all know, the commercial property market in London remains and is set to continue as the dominant force in the UK commercial property market. Mr Morell also expects the growth witnessed over the course of 2010 to subside over the course of 2011. He wrote: ‘In the short term, we do not expect UK commercial property will experience the returns seen in 2010. Such performance is not sustainable in the long run and is way above reasonable expectations for the asset class. However, on a five-year view, we believe the market is priced to deliver high single-digit annual returns driven primarily by income, representing perfectly respectable premium relative to risk free assets.’
Whilst also being practical, a longer period of steady growth will surely benefit the market. One thing we have learnt from this sorry recession is that we must put an end to the days of boom and bust.
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