Skip to content

Central London commercial property sector delivers genuine growth, report suggests

The latest quarterly commercial property market outlook from Cluttons says that as the rest of the country is squeezed by public sector job cuts and low retail sales, investors will be looking to rental growth to deliver returns in the absence of further yield driven capital growth.

Head of commercial valuation consultancy, John Barrett, has predicted the IPD Quarterly Index for the second quarter of 2011 will show a slip in returns as the yield impact on capital growth slows, and advises investors to go back to basics and refocus on locations with rental growth potential.
‘In the current environment, vulnerable secondary locations and property will be at risk of further outward yield movements with the prospect of no uplift and possibly falling rents. The office market in London continues to be constrained and as we move into quarter three we expect to see further pressure on rents in the City and West End,’ he explained.

‘However this is unique as the rest of the country lags behind the capital. We must remind ourselves of property market fundamentals in order to ensure the market grows. After two years, we are finally seeing yield driven returns are coming to an end and investors must ensure rental returns are prioritised,’ he added.

Against a backdrop of unrest in North Africa and the Middle East, and expanding sovereign worries, the UK property market maintains its position as a safe haven, attracting a steady investment flow, offering both transparency and liquidity for the quality stock, Cluttons says. These opportunities extend to selective markets outside the capital where pricing and positive rental growth prospects look positive.

The report also says that London continues to benefit from tourist spend and strong yields in key locations, however Cluttons expects the true cost of living will be reflected in retail sales in more vulnerable parts of the country which have suffered a downturn in sales since the royal wedding.

Although London and south east shopping centres are thought to be the most resilient, Cluttons has highlighted there are opportunities in some secondary centres throughout the country which benefit from affordable rents and strong trading levels.

The industrial market is experiencing falling yields in London and affluent south east locations, anticipating rental growth, it adds. Appetite remains for industrial estates which have achieved prices above the asking figures, though this is not typical throughout the country.

Outside the capital, office occupier demand is weak and concerns over government austerity measures are adding to uncertainty. Demand for good stock and prime assets will continue as poor secondary assets will struggle, it concludes.