UK Commercial Market Outlook

Limited stock and rising investor confidence continues to put downward pressure on prime yields. London offices, M25 offices and shopping centres have led the downward shift.

The yield gap between prime, secondary and tertiary sectors has now widened. As this gap continues to widen we expect buyers to step in and take advantage of high yielding secondary assets.

At 29.7 million the number of people in employment is now at an historic high. This job creation is increasing at a faster pace in London than other UK regions. We believe this will drive rents and prices across London and the South East. Offices are likely to lead the recovery in the near term, however, the weak pound and the rise of internet shopping will see demand for industrial assets level out with secondary retail.

On a more regional basis, the industrial sector is now seeing a shortage of available stock in the South East. This is largely a result of fewer speculative developments since 2008 and we anticipate a rise in design and build solutions in the near term.

In conclusion and with investors focusing on the very narrow prime end of the market, we believe opportunities may exist in ‘good secondary’ locations. These properties are generally good quality, where growth can be achieved by improving the quality of the income stream or the asset itself.