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London commercial property prices climb while regions struggle

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London commercial property prices climb while regions struggle

The resilience of the capital's commercial property market and its relative strength compared to other cities in Britain has been demonstrated by the latest IPD UK Quarterly Property Index.

As the study shows, the value of assets in Central London rose by five per cent throughout 2012, but regions outside of the city witnessed an average decline of 5.8 per cent.

When the overall figures are taken into account, commercial property total returns in the UK slid from 7.8 per cent in 2011 to 2.7 per cent last year, but with income returns holding steady at six per cent there appears to be little need for panic.

"Property is dividing the UK as London returns and the regions lose value. The sector is also split between those with capital holds and others seeking income," said Phil Tily, IPD UK and Ireland managing director.

"Different investors have defined for themselves different objectives, and that is one of the beauties of real estate: its flexibility.

"What we do know is that those funds performing the best over 2013 will focus very much on asset management."

According to the report, secondary long-lease assets returned an average of 3.6 per cent last year while prime long-lease commercial properties boasted yields of 4.1 per cent.

With the economy having briefly slipped back into a recession during 2012, it's perhaps unsurprising to see that economic confidence has faltered - and this can help explain the tough conditions in the commercial property market.

But with income returns holding firm and Britain looking to recover from the financial crisis, it is hoped that the sector will enjoy better fortunes in the coming year.

Indeed, a recent report published by DTZ claimed that secondary commercial property market capital values will recover from 2014, eventually overtaking prime assets as the industry continues to undergo changes.

As observers continue to track shifts in the sector, it seems that London is set to remain a safe haven for investment given its solid performance in 2012.


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