Commercial property should get back to fundamentals says Cluttons

Central London has led the way and has delivered successfully and consistently genuine rental growth in the office and retail sector. This has caught the attention of both overseas and UK investors which Cluttons forecasts will continue.

However, 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.

Barrett said: "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 Q3, we expect to see further pressure on rents in the City and West End.

"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." 

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. These opportunities extend to selective markets outside the capital where pricing and positive rental growth prospects look positive.

Other findings from the research include:

•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. 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.

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