Yields from commercial real estate investments in the UK were broadly stable in the year to January 2012, with eight out of the 13 sectors surveyed by Savills recording no movement in this 12-month period. In its Market in Minutes report, the organisation noted this steady performance is set against "massive volatility in rental growth expectations", which may lead investors to question the overall stability of the country's property sector.
However, the firm pointed to the imbalance between supply and demand as one of the key factors that will continue to support prime yields. Regional hotels sit at the top end of the scale, offering a return of 6.75 per cent at present, while leisure parks, industrial distribution units and M25 offices all provide a yield of 6.25 per cent. At the other end of the market are West End offices, which generate returns of 3.75 per cent, with the remaining asset classes delivering returns of between 4.5 and six per cent. Savills predicted yields in some sectors may harden further in 2012, which could encourage investors to seek out opportunities in the secondary sector in a bid to boost returns.
IPD recently published data showing the total return on property investments slipped to its lowest monthly level in January since June 2009. According to the organisation, falling capital values dented the overall amount earned on the asset class, bringing it to 0.4 per cent last month. Despite the dip, managing director of the UK and Ireland division at IPD Phil Tily stated there are reasons to be positive. "Income return remained steady, 0.5 per cent at the all property level, and it remains important to remember that in a very uncertain market, commercial property is still returning 0.4 per cent to investors," he asserted. Savills also pointed out this sector is performing better than alternative options, such as equities and cash, which may result in more investors building real estate portfolios this year.
- Monday 20 February 2012