The pre-stock market strength of the property market is reflected in falling average yields registered by Hillier Parker in their latest quarterly survey.
In the three months to November, the average yield for all property dipped by 0.2%, its second consecutive fall. The decline is due to drops in both office yields, down 0.2% to 7.4%, and industrial yields, down 0.3% to 9.8%. Shop yields were unchanged at 5.3%.
Hillier Parker say that the improvement in the latest quarter is much more broadly based than previously, with most regions showing lower yield levels. Office yields in all regions, except the City of London and Scotland, fell, with the largest drops in suburban London. Here, yields fell 0.6%, adding 7.5% to capital values.
With central City yields flat at 4.8%, and those in the City fringes falling to 6.6%, the gap between the two locations has narrowed significantly by about 1% from the beginning of 1986. This is the first time since 1983 that yields in the City fringes are below 7%.
In the industrial sector, average yields have dropped to single figures for the first time since the summer of 1984. The improvement has been across all regions, with London and the South East showing yields of 8.9% and 8.4% respectively.
But, as Hillier Parker point out, the Midlands yield of 9.6% suggests that demand is not restricted purely to the South. In the North and Scotland, yields are still in double figures — 11.3% and 11.8% respectively.
While current figures underline the strong recovery in direct property investment over the last year, Hillier Parker sound a warning note on future trends.
Uncertainties over the funding market, interest rates and the impact of a possible downturn in the United States economy are all casting their shadow. Hillier Parker say that, on balance, yields are likely to continue their downward path, but at a slower rate.
