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DTZ paints optimistic picture for secondary commercial property market

DTZ paints optimistic picture for secondary commercial property market

Despite having endured a tough time since the onset of the financial crisis in 2007, the UK's secondary commercial property market is expected to pick up in the coming years.

As property agent DTZ has forecast, returns on secondary investments will begin to outperform prime commercial property yields from 2014 as the variation in the value of such assets starts to have a bigger impact on the sector.

While the pressure that economic conditions are placing on the price of secondary properties is predicted to continue throughout 2013, it is expected that this will improve as of next year when DTZ says capital values will begin to recover.

Given that the secondary market has experienced sharper falls than its prime counterpart in recent years, this news is likely to be welcomed by investors as they look for a return to rental growth and a more positive future for the industry. 

Ben Burston, head of UK research at DTZ and joint author of the report, said: "The recovery in secondary values will initially be driven by a fall in risk aversion that will narrow the spread of secondary yields with prime.

"As the economic recovery solidifies, we then expect to see secondary rents stabilise.

"The office sector will lead the recovery, supported by strength in London."

Once returns on secondary commercial properties begin to rise, it is said that these increases will offset the decline in capital values and lead to greater stability in the market, putting it in a strong position for growth.

Charles Smith, head of valuation UK at DTZ, added that investors will still have to be selective with their purchases as the best yields will continue to be found in higher quality stock.

"We are already seeing investors identifying buying opportunities and executing on these," he explained.

With a more positive outlook for the commercial property market for the coming years, it appears that Britain is continuing to distance itself from the economic strain of the double-dip recession.

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