Global property adviser Cushman & Wakefield Healey & Baker (C&W/H&B) has raised its forecast for total returns from UK commercial property from 9.9 per cent to 10.4 per cent during 2005. Returns across all sectors are then expected to dip to 7.6 per cent in 2006 and 7 per cent in 2007.
The figures are released this week in Marketbeat, C&W/H&B's quarterly survey of the UK commercial property investment market. The forecast for 2005 is against returns of 18.3 per cent in 2004.
Evidence in the first quarter of 2005 is that there is little or no slowdown in investment demand with the weight of money driving down the all UK property prime yield to 6.19 per cent, the lowest level since the early 1980s. Investment volumes were 27 per cent up on Q1 2004. Investment in London offices, for example, reached £3.3 billion during Q1 compared to £5.49 billion during the whole of 2004.
Target performance rates set by investors looking for low-risk secure performance are still comfortably covered by property at current yield levels - particularly given the renewed fall in bond and Gilt yields. Some investors, however, are seeking higher returns, betting on a recovery market and expecting a short term rental upturn that is not yet in evidence in the occupational market. Some investors are therefore paying well in advance for their future growth.
Tim Sketchley, head of capital markets UK, C&W/H&B said: "As the economic outlook becomes slightly more uncertain, there is no doubt that investors are looking at property both directly and indirectly as a way of not only protecting capital, but also to obtain a stabilised and secure income growth. The weight of money therefore is sustaining the current market, and there is clear evidence for a reduction in yields in prime properties. If anything, the potential rise in interest rates, whilst delayed, will begin to provide a natural differentiation between the prime, and the secondary markets, the later of which has a risk profile which might become more apparent, as we move through this current economic cycle."
Source: C&W/H&B
