Many real estate investors are looking to core markets in the UK, with office and residential properties in London and the south-east among the most popular. This is according to head of property multi-manager at Aberdeen Asset Management Richard Gale, who explained the strong demand for these asset classes has pushed values higher. In addition, Mark Routledge, executive director of business space capital markets at CB Richard Ellis (CBRE), recently highlighted the investment opportunities available in England's south-east office market.
He pointed to a marginal increase in activity in the region where this type of commercial property is concerned, adding prime yields in the sector "remain stable". However, Mr Routledge stressed it is not only prime assets that should be on investors' radars. "With secondary yields drifting out to ten per cent plus, there has never been a better opportunity to buy stock that needs active asset management, which can be purchased at less than replacement cost," he asserted.
Other commercial property classes attracting investors include retail warehouses and supermarkets, Mr Gale noted. He explained supermarkets, along with residential care and hotels, offer something that can be hard to find - growth linked to the retail prices index (RPI). "The most important thing is security of income, preferably with some inflation protection. This means that if you can get hold of RPI-linked growth with secure covenants, then it is happy days," Mr Gale concluded.
However, he acknowledged there are barriers to investors seeking commercial property investments, such as a lack of debt finance and low development starts, which means there will be fewer new buildings coming on to the market moving forward. The latest Savills Commercial Development Activity report revealed this may change though, as growth in the level of activity was posted by the construction industry in April for the second successive month. In addition, a generally positive outlook for the three months ahead was recorded among professionals working in the sector.
- Wednesday 16 May 2012