“Though yields for UK commercial property have been compressed after a strong run of stable gains in capital values in recent years, we see a buoyant economy and labour market continuing to support rental growth,” said Stephen Rees, head of real estate at the private bank.
“Commercial property on the whole managed to avoid the lull in activity witnessed in the UK residential market in the run up the general election,” he said. “Transaction volumes for UK commercial property in the first quarter reached £19.1bn, which was second only to the record set in the previous three months.”
Rees says transactions were helped by ‘a surge’ in student accommodation and hotel deals, while favorable returns relative to other asset classes and the UK’s reputation as a safe haven also continued to boost demand as they have done for some time.
Demand from foreign investors remains strong, accounting for 42% of all UK deals in 2014, Rees noted.
Following the resulting sharp valuation climbs in London, Rees believes the UK’s regions now offer better value for investors, and he expects to see growing demand.
He did sound note of caution. “Investors should be cautious when yields are so low that there is limited scope for them to be compressed further through rising capital values.”
“But overall, we still see UK commercial property as an attractive asset class – we concur with the recent RICS Commercial Property Market Survey suggesting that confidence in the UK economic outlook remains healthy, and that 2015 will be another good year for property,” Rees said.
