According to the latest research from Invista Real Estate Investment Management ("Invista"), there has been a noticeable thawing in the near-term outlook for UK Commercial Property, driven by increasing economic optimism and tangible evidence of buyers re-entering the commercial property market. In particular, it points to a growth in demand, primarily from overseas investors, for prime, well located, long-let properties.
These early positive signs need to be considered against the ongoing fall in capital values for UK Commercial Property, which according to IPD figures are down 4.0% for the three months ending June 2009. Nevertheless these falls seem to be slowing, pointing to a potential stabilization in capital values. This, together with above trend yields we are seeing, could make the UK Commercial property market relatively attractive.
However, according to IPD UK commercial property rental values fell by 2.7% during Q2 2009. This pace of decline has not been seen since the end of 1992 and the emergence of the UK from its last major recession. Despite the falling rental values, Invista believes that the prospects are encouraging for a quicker recovery in rental values than was witnessed in the 1990s, assuming that there are no further major financial shocks in store. It attributes this difference to an economically driven contraction in rental values as opposed to a glut of new space in the market and says that this comparatively steady positioning is reinforced by the fact that rents have not risen sharply over the preceding years.
Mark Long, Head of Investment Strategy and Research at Invista, says: "We are seeing a growing investor appetite for good quality UK commercial property investments, lead principally by overseas investors, who are attracted by the high level of investment yields and the relative weakness of sterling. However, the broader investment market is likely to continue to see further falls in values as weak occupier demand continues to push rents down. That said we are cautiously optimistic of the near-term prospects of the UK Commercial Property market and believe that a recovery in the market will be quicker than in the 1990s providing there are no further shocks to the system."