How stable is the UK commercial property market? In truth pretty much the same as residential, largely stable, no shocking movements in either direction overall, but with vast regional differences; namely a much better performance in London and the south than in the north.
According to data from the FTSE UK All Property Index Returns (covers commercial property in all sectors, retail, office and industrial), returns have been largely in the past 12 months, with ever-present income returns supporting small capital gains.
The FTSE All UK Property Total Return Index (NAV) for the 12 months is 10.22%. From other indices in the series we can see that the office sector has performed best in the last 12 months, with returns of 14.56% in the last 12 months, compared to 8.20% and 7.39% in retail and industrial respectively.
According to Knight Frank, pessimism is badly affecting commercial property investment in the UK and they expect very few investments outside of the prime central London market until things improve. The firm's UK Market Outlook report for Q2 2011 reads:
"After all, if investors are getting more risk averse it is difficult to see anyone other than the brave venturing into the murkier parts of the secondary and tertiary markets.
"For instance, the market for retail property in secondary locations needs root-and-branch reform; including a large amount of stock switching to other uses. One would need a very compelling reason and long-term horizons, to enter such a market."
However, the report goes on to talk about only-just-secondary property that is often successfully passed off as prime in rising markets, recommending investing in commercial property as an antique buyer might spot an overlooked gem.
"Such ‘only-just-secondary’ assets acquired during the periodic bursts of pessimism can appear canny purchases six months later. Sentiment changes rapidly, which creates opportunities."
So, what to make of it; is it stability or is it stagnation, are commercial property investments UK dead or alive? Well, in all honesty it is well and truly alive and kicking. At the market bottom in 2009 commercial property investment funds made a fortune investing in distressed properties in central London which have gone on to do very nicely indeed as it recovered, and now people need to identify the next London as it were.
The UK has a lot of great cities that are currently on their knees, Liverpool and Manchester perhaps the two most notable. We couldn't give commercial property investment advice without saying that all investors should be considering investment-worthiness on a deal-by-deal basis and trusting their instincts to help them make the right property investment. Commercial property investment yields have been improving since 2009, and this is mostly because shrewd investors are ignoring the doom and gloom and capitalising on the commercial investment property bargains.