In part-2 of our First Choice Property Investment series we look into the UK’s commercial market. From office space to retail, we take an in-depth look into the performance of this asset class.
UK’s commercial sector will be the main focus of this feature due to the substantial growth the market has experienced throughout the course of the year.
UK Commercial Property
According to the property experts at Savills, the UK’s commercial property market has hit record-breaking levels of investment with deal volumes reaching £50 billion in the first 9 months of 2015.
The amount of money pumped into the sector is expected to reach £70 billion by the end of the year – this will be the first time this barrier has been breached.
There is a great deal of confidence surrounding this market despite the fact that prime yields have stayed at 4.65% for two months in a row.
Kevin Mofid, Research Director at Savills commented: “Last year 59% of investment activity in UK property took place outside London, a trend that is set to continue as investors seek the value afforded by the rental growth prospects in supply constrained regional markets, alongside the opportunity to build scale by acquiring portfolios.
“However, regional markets can be more susceptible to Government policy changes than the capital. Investors should therefore consider the potential impact that the extension of commercial to residential permitted development rights could have on rental growth and vacancy rates in regional office and industrial markets,” Mofid said.
“Nonetheless, given that investors currently place UK property head and shoulders above other asset classes, we don’t envisage that these measures will materially affect investment activity going into 2016,” Mofid added.
Data from the Royal Institute of Chartered Surveyors (RICS) has warned that rents in the commercial market will rise over the next 12 months.
As the economy goes from strength to strength, RICS expects that rental values could climb as much as 4% over the next year.
Rents in the commercial office sector are expected to see the largest rise, with rents expected to climb around 5%. London could see rents increase by 6%.
The future of the asset class
Savills predicts that by the end of the year, investment levels will reach a 15-year high. Non-domestic investment in real estate outside of London could surpass 2014’s record by £2.6 billion.
‘We expect this trend to continue into 2016, as it is clear that non-domestic investors are becoming increasingly familiar and comfortable with markets outside London,’ Richard Merryweather, joint head of UK investment at Savills commented.
Are Commercial Assets a First Choice Property Investment?
2015 is shaping up to be a record-breaking year for the UK’s commercial property market and with rents expected to gain pace in 2016, investor sentiment may shift towards the sector.
Rising values and rising rents all point towards the commercial market becoming a first choice property investment.