2014 was a good period for UK commercial real estate. Most of the year’s performance was been driven by a favourable recovery in property yields, with investors looking for income and a general increased strength in the owner occupier market. Looking ahead to 2015 we expect for these trends to continue with yields continuing to strengthen.
The recovery in the economy combined with low levels of development means that the balance between demand and supply is now swinging in favour of landlords and we anticipate that rental growth will begin to accelerate in certain sectors of the market.
Throughout 2015 we predict that further office accommodation will be acquired primarily for residential / student redevelopment under the permitted development rights. This uptake will continue to take some of the poorer quality of space. This demand will continue to increase the decreasing levels of office stock in the market.
In previous cycles this squeeze on space and upswing in rents would have triggered an increase in development. However, so far we have seen no noticeable growth in the number of speculative office schemes coming to fruition. This is partly because stricter capital adequacy rules mean that banks are now less willing to fund projects and partly because rental values have still not recovered to levels that developments become profitable. On this basis the only real new development in this sector will come from owner occupiers.
In both the office and industrial sectors we have experienced consistent demand from local businesses in acquiring freehold accommodation. It is apparent that Regional growth fund monies have been facilitating a number of these acquisitions.
The smaller industrial market has remained strong throughout the recession with freehold values continuing to increase. Within the final quarter of 2014 we saw the strongest enquiry level in the larger end of the industrial sector. A number of these 20,000 sq ft plus requirements are unfulfilled due to a lack of stock of this size in the market place at present. New build development in this size is fairly limited however one or two new ??/? schemes and new builds are being explored to accommodate requirements of this size.
During The final quarter in 2013 we have seen a considerable level of interest in property investment enquiries from not only larger funds across the country but also from private investors in the region’.Throughout 2013 there has been a surge in property investment across the country.
It is clear that there are two types of buyer in this market. The first is looking to acquire what on paper can only be described as a slightly more ‘risky’ product with tenants who only have a few years of term remaining and looking for opportunities offering a high level of return with yields of 10% plus. The second type of investor is looking for opportunities which provide long term security. In these instance’s both lease term and strength of covenant (tenant) is key. Opportunities like these will produce stronger prices and weaker levels of return. Typically for a rack rented retail investment to a national PLC for a term of 15 years would produce levels of circa 6% plus. On lot sizes £1million upwards we have seen a trend for investors keen to spread any risk through acquiring multi let opportunities rather than putting all their faith in one occupier.
With the underlying confidence in the market that prices are now beginning to strengthen now is a good to time consider investing into the property market. With rentals across a number of sectors now beginning to increase the prospects of growth in years to come are good.
Should you be considering investing into the property market or have an opportunity you would like to discuss then please do contact us for a no obligation discussion.