New figures have indicated to property expert Simon Morris that UK commercial property return growth fell slightly in July 2015, partially due to the performance of the central London market.
Central London market
The UK’s capital city of London is one of the most important commercial hubs in the world. This means that commercial property, especially offices, in the central district of the city has become highly lucrative. According to Property Wire, the demand for central London commercial property drove investment levels to £20.5 billion in 2014, just below the market’s investment peak of £20.6 billion, which it hit in 2007.
Commercial property returns
Property Wire recently reported that CBRE’s latest Monthly Index showed that total returns for UK commercial property expanded at a rate of 1.2% in July 2015. This is impressive, but it’s a fall of 0.1%, from the growth rate of 1.3% that UK commercial property returns registered in June 2015.
Meanwhile, the Index shows that return growth for the UK’s office sector slipped from 1.8% in June 2015 to 1.3% in July 2015. The CBRE report attributed to this to the central London office sector; total returns for central London offices expanded 1.7% in the sixth month of 2015, but only 1.1% the following month.
CBRE senior director Michael Haddock commented on the release of the company’s latest Monthly Index. He said: “Despite the slight dip in July, office rents and capital values in central London market have been growing strongly over the last year. As a result of this performance, investment into the market has grown from £2.4 million in in the first quarter of 2015 to £4 million in the second quarter.”
Expanding beyond London
Haddock went on to talk about how investors are circumventing high demand for central London commercial property. The senior director noted that “the high level of competition for central London assets means that investors, both local and foreign, are increasingly looking at opportunities in the rest of the UK and activity has been growing at an even faster rate outside London.”
The report shows that return growth did fall for the remainder of the UK’s commercial property sector, but at a more modest rate. This may indicate to investors that it’s time to invest in commercial stock outside of the UK capital, but Simon Morris would urge caution. Investors should conduct extensive research and seek advice from and an Independent Financial Adviser to determine how they can capitalise on the UK’s burgeoning commercial property sector.