Commercial properties in central London have been a bright spot on the investment map this year, with capital values up by 0.2 per cent in August. According to the CBRE UK Monthly index, although the returns are down from the 0.4 per cent figure in July, they are still considered positive when compared to the -0.7 per cent decline for the rest of the UK. Rental growth also showed a similar disparity in figures, with 0.4 per cent for offices in London and negative numbers for the past three months elsewhere.
“Location, location, location”, is a saying used often in real estate circles, and it’s absolutely accurate when it comes to the situation in London. Investors who have put their money in the right location and the right sector have been able to benefit from returns of 4.4 per cent in the first eight months of the year. The return on investment for all properties was a dismal 0.9 per cent in the same period.
The pattern of strong returns from the central London office market is expected to continue, at least in the short term. Investors holding property outside of the capital can be encouraged by the fact that the August figures represent the lowest monthly decline since the beginning of the year. It’s a bit early in the game for investors seeking out bargains to make a decision to jump into the market, according to Phil Tilly, the UK and Ireland managing director for IPD.
Tilly stated that although there is interest in discounted properties in the UK which have the potential to provide income yields of eight per cent or higher, they are a risky proposition without long-term tenants and income security. He also pointed out that until demand for rented space stabilises outside the capital and confidence returns to the market, it will be difficult to sustain high levels of initial income in the long term.
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