Economic Uncertainty Weighs on UK Commercial Property Market

Negative gross domestic product growth in the UK and continued concerns over the outcome of the Eurozone crisis have weighed on investor sentiment and resulted in a slowdown...

Negative gross domestic product growth in the UK and continued concerns over the outcome of the Eurozone crisis have weighed on investor sentiment and resulted in a slowdown in the level of transactions completed in May. This is the finding of a new report from Colliers International, with the firm noting investment volumes were down significantly last month on the figures recorded in April. GBP 2.7 billion was transacted on UK commercial real estate markets in April, but this declined to GBP 1.7 billion the following month. In the 12 months ending in May, commercial property investment declined by 20 per cent.

The office market accounted for the lion's share of investment deals last month, with GBP 1 billion worth of sales occurring in this sector. Of this figure, 70 per cent came from foreign investment, indicating that international interest in real estate assets in the UK is supporting the market. Meanwhile, the retail sector received more interest in May than in April, with transactions in this sector up to GBP 115 million, from the GBP 25 million recorded in April. However, Colliers International cited data from IPD, which showed rents for retail assets were down by 0.6 per cent in April. A recent Savills report highlighted figures from the Investment Property Forum (IPF), which predict rents for standard retail premises and shopping centres are unlikely to undergo a significant recovery until 2014.

According to the IPF research, only West End offices will see rents remain consistently high, while City offices will stay in positive territory and climb substantially in 2014, bringing them closer in line with their West End counterparts. Savills commented: "The prospect of real rental growth is a few years off outside of the central London office market." Colliers International pointed to the shortage of Grade A space in the capital's main business districts, coupled with strong demand, which is helping support high rents in locations like the West End and the City.

- Tuesday 26 June 2012

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