Recent figures have suggested to property specialist Simon Morris that UK commercial property outperformed the country’s main equity market in the second quarter of 2015.
Demand and supply
The UK commercial property market is going from strength to strength. As was reported on the Simon Morris blog, recent data from the Royal Institution of Chartered Surveyors (RICS) indicates that buyer demand for UK commercial property rose in the second quarter of 2015 for the 11th consecutive quarter.
In contrast, the RICS data showed that the UK’s supply of available commercial space decreased within the same three months, for the ninth quarter in a row. The Society suggested that increased demand and decreased supply will push UK commercial property rents up at their most rapid pace since 1998.
FTSE All Share Index
Money Observer reported that new figures from the FTSE All Share Index have shown that UK commercial property was a lucrative investment class in the second quarter of 2015. This indicated that the IPD UK quarterly property index, which measures the total returns of direct UK commercial property investments, saw returns of 3.5% from March – June 2015.
The UK commercial property sector outperformed the UK’s main equity market on the FTSE All Share Index. Figures indicate that the UK’s main equity market was impacted by widespread volatility spurred by the onset of the Greek Debt crisis, causing it to register a loss of 1.6% from March – June of this year.
The UK commercial property sector’s success was driven by the office space and industrial markets. The IPD data reveals that office space measured returns of 4.9% in the second quarter of this year, whilst industrial saw returns of 4.3% within the same period. In contrast, the UK’s retail property market only registered weak returns of 2.2%.
Invest in commercial property?
The performance of the IPD UK quarterly property index showed that commercial property was one of the nation’s most lucrative asset classes in Q2 2015. The high demand for commercial property, coupled with weak supply, may suggest that this trend will continue for the rest of the year.
This may lead investors to believe that now is the time to invest capital in the UK’s commercial property market. Property expert Simon Morris, however, would advise investors to be cautious. Potential investors should investigate the risk/reward ratio of a commercial property investment opportunity before they commit.