UK commercial property market returns are set to ease in the next 12 months, according to the latest research report from Invista Real Estate Investment Management.
The company said buyers had continued to loosen their investment criteria with increasing interest outside of prime, well-located, long-let properties having driven yields down across the less prime end of the market.
“Nevertheless, secondary property yields remain, for now, anchored by the downside risk implied by the ongoing fragile economic outlook,” the company said.
Invista expects total returns to be around 7.5% over the 12 months to end May 2011, but added the risk was on the downside.
“Should government bond yields come under severe pressure either from a lack of investor confidence, or as a result of bank rates rising more quickly than expected, upward pressure on property yields could depress returns in the short term,” said Invista.
Jeremy Marsh, senior property analyst at Invista, added: “We believe that UK commercial property market returns are set to ease in the coming 12 months, but we are unlikely to see as dramatic a slowdown as we did in the mid-1990s.
“Although market rental value growth is expected to be anaemic at best, the historically high margin between property and government bond yields should protect performance in the short to medium term.
“Nevertheless, the risk is almost all on the downside, with the possibility of sharp rises in government bond yields the most significant threat.”
nathan.cross@estatesgazette.com
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