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Insight & Opinion

UK commercial property market still seeing investment levels rising

Author: Luke

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The UK’s commercial property market enjoyed a strong 2014, with investors welcoming improved yields on their purchases throughout the year. Some reports put total returns for 2014 at 20 per cent, which marked one of the strongest 12-month periods in recent times, and a real return to strength for one of the country’s biggest asset classes.

And it seems that the strength witnessed in 2014 has created a strong level of demand throughout the market as we move into 2015, with Savills reporting that investment sentiment showed no signs of letting up towards the end of the year.

The commercial property sector in 2014

The company reported that the positivity at the end of the year meant that 2014’s total investment level in the UK property market was the second highest in history. Only 2006 saw more investment in commercial stock than 2014, and through the year, investment levels climbed by nine per cent to end 2014 with a total of £59.3 billion, only marginally behind the £61.6 billion that was recorded in 2006.

One trend that really came to the fore in 2014 that we hadn’t seen as much in recent years was the spreading of cash across a range of different sectors. Whereas in the last few years, we’ve seen the office sector really strengthen, last year saw more people look towards other areas of the commercial market.

According to Savills, this was down to the confidence across commercial property as a whole. It said that in the logistics property sector, for example, there was some £4.2 billion of investment in 2014, which marked a massive 54 per cent increase on what we had seen in 2013.

What will this year hold for commercial property?

After such a strong year in 2014, it stands to reason that 2015 will be another, with investors feeling more and more confident that putting their money into the sector will give them strong yields in the future. And Savills says that it expects this to be the reality moving forward.

Although the election is likely to cause a slight dampening of investment spending in the first half of this year, moving forward we are set to see more and more people putting their money into commercial stock, which should see 2015 become a positive overall.

“Into 2015 we believe the commercial investment markets will still offer opportunities for both risk-averse and risk-embracing investors,” the report stated, although it also went on to say that it does not expect to see the stronger than expected bounce in capital values seen in 2014 to continue as strongly this year.

“We expect that in 2015 rental growth in certain markets will make up a greater element of returns with strong growth forecast in the undersupplied regional office and industrial markets,” Savills concluded in the report.

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