Commercial property investors are being warned by Cluttons, who specialise in providing international property consultancy services, as well as chartered surveying, about hidden threats facing investors next year.
Many factors, outside of the UK are currently having impacts on the UK commercial property market. The main issue at the moment is the uncertainty of the Eurozone, which is having positive impacts on the market in the UK, especially in terms of cash injections.
An example of this, is the London commercial property market, which according to Cluttons, has the ability to increase rental incomes, by offering shorter leases at a reduced cost, in order to attract and secure tenants. Speaking of the London market, John Barrett, Commercial Valuation Consultancy Head at Cluttons, stated: “Central London’s unique ability to produce genuine rental increases in the office and retail occupier markets has ensured it retains its attractiveness for both UK and overseas investors. Indeed, the Eurozone turmoil and resulting volatility in the financial markets have reinforced the appeal of well let prime and good secondary assets, particularly those with secure bond characteristics.”
So, for investors to secure tenants in the future, they need to think ‘outside of the box’ if they want to see a return on their investment, as Mr Barrett put across: “There are examples of regional investments being marketed as rack rented, supported by letting evidence from headline rents set 12 or 18 months ago. Given the condition of occupier markets, more recent transactions might show rental values today at more than 25 per cent below the passing level, after allowing for the potential cocktail of incentives. This lack of like-for-like transactions may mask investment opportunities but also threatens future investment performance. However, within this environment there are most definitely opportunities for investors who have fully unpacked the value of individual assets, hidden threats remain for the unwary investor.”
Offices
They predict that this sector will continue to outperform other markets, and will be occupied by lease renewals, rather than new businesses.
Retail
They predict that yields will stay firm, but the downfall in consumer spending and rising unoccupied retail commercial properties could put pressure on yields. They also predict rental values to fall as landlords offer incentives to both keep and attract tenants.
Industrial
Cluttons predict that the take-up of both industrial and distribution commercial properties will continue to plummet in 2012 and 2013. However, they do believe that some areas will do better than others, especially ‘hotspots’ like: London and Aberdeen.
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