Commercial property delivers a positive return for investors


Confidence is continuing to return to the real estate investment market with UK property delivering a 10.5 per cent total return in 2013 as performance strengthened throughout the year, new figures have revealed.

Almost all (97 per cent) of UK property portfolios delivered a positive return for investors last year, with 55 per cent achieving in excess of ten per cent, according to the latest IPD UK Quarterly Property Index results.

In terms of capital growth, Birmingham recorded the 12th highest figure amongst IPD UK’s Quarterly Key Centres in 2013, achieving 1.9 per cent. London was top with nine per cent growth, followed by Cambridge (6.9 per cent) and Brighton (5.4 per cent). Middlesbrough was bottom.

In the fourth quarter of the year, however, Birmingham’s position improved from 12th to 10th with capital growth of 2.6 per cent.

Speaking at the launch of the report in Birmingham, hosted by the Investment Property Forum, Malcolm Hunt, executive director, IPD UK & Ireland, said: “From where the property investment market was two years ago, these latest results paint a very different picture, with total returns improving and values increasing across all market segments.

“London and the South East continue to outperform the rest of the UK but there are positive signs that capital growth is returning to the regions, albeit it at a slower pace.”

According to the IPD report, the office sector was the best performer, with total returns of 5.8 per cent in Q4 – up from 3.5 per cent in in the previous quarter. Rental values also increased 0.8 per cent over the same period.

Unsurprisingly, London’s West End offices saw the highest total returns in Q4 at 6.4 per cent, supported by strong rental value increases. This compares to 3.4 per cent for offices in the rest of the UK.

The industrial property investment market was another big winner, with total returns reaching 5.6 per cent in Q4, buoyed by sustained rental growth during the last two quarters.

Retail was the poorest performing sector, with a total return of 3.3 per cent in the final quarter of the year.

Claire Higgins, head of research at BNP Paribas Real Estate, who was also speaking at the event, said: “Investor demand for London remains strong but it is not just the capital that has seen volumes rise. We are seeing early signs of a recovery in regional markets, with occupier activity and rental growth starting to pick up, particularly in the offices and industrial/logistics sectors.”

Ms Higgins said all commercial property sectors would produce double-digit returns this year, with regional offices and industrial producing returns of
12 per cent but retail lagging slightly behind. Over the coming three years, South East offices and distribution warehouses are forecast to be the top performing sectors.

“The market will no longer be solely driven by London. It will be the frontrunner in the short-term but the rest of the UK will eventually catch up and even overtake in some sectors,” she said.

“The commercial property market will continue to perform well over the next two years, providing double-digit returns. However, as the market cools down we expect to see a tailing off in 2016.”