For investors looking to dip their toe or expand into the commercial property market, it is important for them to keep an eye on sector figures to see if this is the right time to buy or sell. Here is a general overview of what the market has to offer.
Gradual recovery
The commercial property market seems to be turning a corner, if recent figures are anything to go by. According to the latest International Property Databank (IPD) UK Property Index, returns in the sector increased to 1.9 per cent in the three months leading to June 2013. This is the highest growth recorded since June 2011. Furthermore, capital values have increased by 0.4 per cent over the same period, following 18 months of poor activity and average property values having been slashed by 3.5 per cent.
As the wider economy shows signs of improvement, with recent retail and manufacturing figures boasting growth and optimism, occupier demand and market sentiment are all boosting towards the end of 2013.
Sector and region specificities
These figures are in conjunction with new research by property consultancy CBRE, which revealed that over £1 billion of capital was invested in the industrial and logistics sector in the first six months of 2013. This figure is even higher than the total volume of deals that was transacted in 2012. The industrial market has proven to offer investors with yields of up to eight per cent, while the south-west of England has performed the strongest, taking up 742,000 sq ft in the first half of the year.
Generally, other sub-sectors have shown great optimism in 2013. The latest Hotel Investor Sentiment Survey from Jones Lang LaSalle revealed that expectations for hotel investment are set to remain positive until at least 2015, with the average cap rate requirement being estimated at 7.1 per cent. This is very close to the seven per cent levels recorded in 2007 before the global financial crisis hit. Furthermore, investments in UK shopping centres stood at £2.16 billion in the first half of 2013, according to recent data by Savills. In total, this is a 35 per cent increase in the amount invested in the same period last year.
In regards to wider land, development land prices rose on average by 1.2 per cent across England and Wales between April and June 2013, according to the latest Residential Development Land Index by Knight Frank.
Central London continues to pull in the investors with its prime office space and large supply in the City. Interest has particularly been seen from foreign buyers, especially from Asia and the Middle East.
Caution is key
So what does all of this mean? It is obvious that the UK economy is not in the state that it was over six years ago, but that does not mean that potential buyers should shy away from riskier investments. With such severe competition for prime properties in the larger cities, this has caused rental and buying values to soar, and there are industry fears that supply may not reach demands within the market. Furthermore, if property values continue to rise, this may start discouraging investors from buying, with credit availability from lenders improving but still limited. In turn, this all does not bode well for the future of the market.
The general advice is that buyers should make the most out of these favourable market conditions and with great governmental initiatives, such as the Funding for Lending and Help-to-Buy schemes, this is the right time to buy. However, all investment decisions should still be held with caution and plenty of research. Economically, we are still not out of the woods just yet, regardless of what positive figures say.