A ‘bounce’ in UK commercial property investment activity is expected before the summer – according to Cushman & Wakefield’s latest monthly market briefing.
“With the UK election settled, many are thinking it's now back to business as usual and certainly the market is in a good place, with a bounce in activity quite likely ahead of the summer. However, there is plenty of room for surprises later in the year as the new government's policies come forward and investors need to keep a careful eye on market fundamentals,” comments David Hutchings, Cushman & Wakefield’s head of EMEA investment strategy.
According to the report, elements of the housing market may have marked time though the election period but the commercial market saw little overall impact, with demand high and pricing under pressure from rising rents and falling yields.
Prime yields dipped to a current average of 4.88% while secondary yields continued to fall at a faster rate, down 8bp to an average of 7.25%; still an above average prime to secondary yield gap in historic terms but the tightest we have seen since late 2011.
Alongside a still rising supply of new capital targeting the market, there is a strong appetite to provide finance across all lender types and across a growing spectrum of the market. Debt funds for example are growing more noticeable, targeting the value-add and opportunistic end of the market rather than the crowded core segment.
Supply remains the main barrier to more activity but this is slowly changing as investors broaden their target range, as higher pricing encourages some more vendors to come forward and as recently purchased debt portfolios are unbundled and sold on.
Occupier demand generally is also more encouraging for buyers, most notably perhaps in the industrial sector. Investor confidence in this segment continues to rise as a result, with portfolio sales pushing up volumes and more new development under consideration.
Office investment and tenant demand have both been strong in London and key regional cities meanwhile, with falling supply putting upward pressure on rents as well as pushing down incentives.
For retail, tenant demand for prime space is also up and there are some signs of improving rents. However, while investor demand is strong for prime, it is still very selective for weaker shops or retail warehouses.
Cushman & Wakefield’s chairman of UK capital markets, Patrick Knapman, said: “The better outlook for consumers has already filtered into the occupier market and investor demand is now ramping up across the prime retail market. At least for shopping centres this also now extends into the secondary market, with a real depth to demand and highly competitive bidding pushing yields down. The same scale of interest for secondary retail warehousing or shop units is yet to materialise however."