A report from leading global real estate developer DTZ suggests that UK commercial real estate enjoyed a meteoric 2014. Property expert Simon Morris explores what this means for UK commercial real estate in 2015.
Commercial property delivers stunning returns in 2014
Experts were optimistic about the fortunes of the UK commercial property sector at the start of 2014. Data from the IPD UK Commercial Property Index showed that commercial property in the UK measured total returns of 8.9% in 2013.
By October 2014, experts were suggesting that commercial property could deliver returns of 20% or upwards for 2014. The IPD UK Annual Property Index suggested that the commercial class did record impressive returns in 2014. Industrial and office properties recorded particularly impressive returns; 23.3% and 22.7% respectively.
UK commercial real estate prices rise in 2014
A new report from DTZ suggests that commercial real estate prices excluding London also enjoyed a good 2014. The report shows that commercial real estate prices in the rest of the UK increased at an impressive rate of 35% from 2013.
This equates to £36 billion of investment in commercial real estate outside of the UK capital. Interestingly, according to Property Magazine, this pushed up the value of commercial real estate across Europe. The last three months of 2014 saw European commercial real estate values expand by 7.8% quarter-on-quarter, raising yearly price growth on the continent to 20%.
How does this compare with London?
How does this compare with that all important UK market, London? The UK capital had a good 2014; commercial real estate prices rose 23% year-on-year. However growth is declining; values expanded 8% in the third quarter of the year but 5% in the final quarter of the year.
London commercial real estate prices now sit 20% above their 2007 peak. In contrast commercial real estate values for the rest of the UK fell by 50% from 2007 to the beginning of 2014. This means they have now risen to 2004 levels and sit 25% below their 2007 peak.
Room to expand
By any means UK commercial property enjoyed a fantastic 2014. Returns increased and commercial real estate values ticked up right along with them. They ticked up so much that they became the backbone of growth in Europe.
The question funds and investors need to ask now is, how will the market grow in 2015? Will it continue to record impressive returns? Where do commercial real estate values have the most room to expand; London or the remainder of the UK? These are the questions that need to be asked if anybody hopes to accrue profit from the UK’s commercial property sector by the end of 2015.