London property returns rose by a record 18.1% in 2015, according to Levy Real Estate and MSCI analysis.
Property values increased by 13.6% for the year, while rents grew by 8.5%.
The research shows that real estate values and rents are now well above their pre-recession peak.
Rents are now 10.3% above 2008 levels, and in a number of submarkets they are 25% higher.
Meanwhile, property values are 14.9% up, and in four markets are more than 40% above their peak.
Simon Heilpern, Levy Real Estate investment partner, said: “Returns are now being driven by a growth in rents and this suggests that London’s commercial property investment sector can expect further sustainable growth in values.”
The research shows the average initial yield has fallen to 3.8% in London, 20bps below the 4% seen at the peak of the market in September 2007.
In some of the capital’s core sub-markets, yields have fallen to less than 3%.
Colm Lauder, MSCI Real Estate vice-president, said the rate of yield compression had slowed as yields reached record low levels.
He said: “This has resulted in rental growth taking over as the main performance driver, as confident and expansionary businesses compete for space.”
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