The UK’s commercial real estate market has reached a kind of plateau, with little change expected in capital values or yields over the coming months, it has been claimed. Partner in the commercial research team at Knight Frank Darren Yates explained there is unlikely to be much further yield compression among commercial assets in 2012, which will affect the total returns generated on such investments. “This year, in terms of total returns, you are probably looking at 6.5 per cent for the all property level and most of that is going to be income – you are not going to get much growth in capital values.”
Mr Yates also highlighted the uncertainty over the outcome of the eurozone crisis as one factor that is affecting the commercial real estate market, particularly in terms of investment volumes. He asserted many investors are “sitting back in a ‘wait and see’ mode”. Therefore, he predicted a resolution to the sovereign debt issues in mainland Europe would help boost the commercial property sector in the UK. However, a recent Deloitte report highlighted the opportunities available to investors “with cash, nerve and a long-term perspective”, noting there will be chances to “take market share and to acquire assets on the cheap”.
Deloitte anticipates a drop in the value of UK commercial property over the course of 2012; although the firm pointed out prime real estate assets will continue to perform well due to high demand, while premises in secondary locations will suffer. “The same desire for risk aversion that drives the prime market has led to both a lack of investor demand for secondary properties, as well as difficulties in financing it,” the organisation commented. Mr Yates also believes the outlook for prime real estate markets is relatively good, stating that strong demand is helping underpin the sector.