Commercial property investment in the UK remained buoyant in the run-up to the General Election. However, according to a new report by Cushman & Wakefield, the levels seen so far will be nothing compared to the activity expected during the summer months, when a “bounce” is expected to boost the market further.
The forecast comes in Cushman & Wakefield’s latest monthly market briefing, which points out that prime yields have fallen to a current average of 4.88 per cent, while secondary yields have dropped at a faster rate to 7.25 per cent.
Although this remains above average when considering the history of prime to secondary yield gaps, it is the tightest gap seen since 2011 and is largely due to a drop in prime investment opportunities causing a lift in interest for secondary stock.
Head of EMEA investment strategy at Cushman & Wakefield, David Hutchings, believes that monitoring market trends will be essential for potential investors as the summer boom approaches.
He says; “With the UK election settled, many are thinking it’s now back to business as usual and certainly the market is in a good place, with a bounce in activity quite likely ahead of the summer.
“However, there is plenty of room for surprises later in the year as the new government’s policies come forward and investors need to keep a careful eye on market fundamentals.”
As the report points out, one of the major barriers currently standing in the way of a significant hike in UK investment is a lack of supply in many areas of the commercial property market.
While many developers are enjoying a distinct uplift in the number of projects given the green light – particularly where mixed use developments are concerned – the high demand for investment opportunities has created competition in the market, which often sees the highest bidder paying more than expected in prime locations.
However, the supply issue is steadily being negated as investors broaden their target range, with many now looking outside the traditional markets and picking up properties which remained largely under the radar during the initial post-recession boom. Furthermore, the higher totals achieved by deals have encouraged a growth in the number of vendors active on the market, while the breakdown of recently purchased debt portfolios have furthered this trend.
The question, then, is whether this demand will help to smooth the ridges still prevalent in the retail sector, where demand for prime space is rising but in secondary locations remains selective. Chairman for UK capital markets at Cushman & Wakefield, Patrick Knapman, points out that this has already been the case in shopping centres.
He says; “The better outlook for consumers has already filtered into the occupier market and investor demand is now ramping up across the prime retail market.
“At least for shopping centres this also now extends into the secondary market, with a real depth to demand and highly competitive bidding pushing yields down.
“The same scale of interest for secondary retail warehousing or shop units is yet to materialise however.”
