The office market was the most robust of the UK's commercial real estate sectors in the first quarter of 2012. A report compiled by F&C REIT - the investment division of F&C - noted returns for offices stood at 1.1 per cent between January and March this year, compared to 0.9 per cent for industrial and logistics properties and 0.5 per cent for retail outlets. However, polarisation between London and the regional markets in the country remains, with areas such as the West End/Midtown and City delivering returns well above the national average, at 2.2 per cent and 1.5 per cent respectively.
Investment in the office sector is holding up, according to the F&C REIT research, with assets in the country's capital particularly sought-after among overseas buyers. Central London transaction volumes in the first quarter of this year stood at GBP 3.6 billion and were 40 per cent higher than the long-term quarterly average. The picture is very different in the regions, though, with investment volumes elsewhere in the UK recording their lowest quarterly level in more than two years. Property investors are focusing their attention on the south-east of the country, while prime assets are favoured. These high-quality offices still deliver "modest, but positive total returns" to investors, the report stated.
Earlier this month, Knight Frank predicted the M25 office market will perform well over the coming years, driven by a desire among occupiers to move from grade B to grade A space. Head of south-east offices at the firm Emma Goodford commented: "Good buildings in good locations are letting. It isn't rocket science - companies with strong balance sheets can afford to pay the best rents for the best quality space." According to Knight Frank, overseas buyers looking for commercial real estate investments have picked up on the performance of the region's office market. Tim Smither, head of south-east investment at the organisation, explained the pricing is attractive in comparison to London, although he added many overseas purchasers require "large lot sizes and a compelling story to generate sufficient returns".
- Tuesday 29 May 2012