VIDEO: Deloitte Real Estate has warned that property’s performance could slow to half of last year’s level after returns from the industry ended 2014 on a quarter-of-a-century high.
The agency said that UK investment volumes ended the year on a high of £56.2bn, up by 3% on 2013, and closing in on the previous peak of £61.6bn in 2006.
But it added that yields fell further and faster in 2014 than most expected, with West End offices hardening from 4% at the end of 2013 to 3.5% this year. Yields were now at, or close to, all-time lows, limiting the scope for further falls, the firm said.
“We are expecting low double-digit returns, with some very strong performance in London and the regions performing better [than previously]. Retail is still bit of a watch sector, particularly supermarkets, as they move away from the big-box format towards convenience,” said Anthony Duggan, Deloitte Real Estate advisory partner.
“As a result, 2015 will see a greater reliance on rents to lift performance. But rental growth is rarely as potent a driver as yield compression,” Duggan said.
In the occupational market Deloitte RE said that the mega-mergers were back and that occupiers were expanding, with sale or letting deals expected across a broader range of mid-sized firms.
“We think there will be a modest slowdown in the UK economy in 2015. But it will still leave the UK as one of the fastest-growing economies in the European Union,” said Ian Stewart, Deloitte’s chief economist.
“Appetite for risk is quite elevated and that reflects pressure on firms from investors to bring in returns that will drive increased investment and increased M&A,” he added.
It also reported a shift in the geography of corporate expansion, with its Business Leading Britain report showing that 649 of the UK’s fastest-growing medium-sized companies were based outside London and the South East.
Click on the video above to watch the predictions.
