Mike Oldrieve MRICS of Vickery Holman has made the following commentary on the investment market for the first Quarter of 2015:
What a relief a property investment market you can rely on, with yields closer to the long term average; a level which has been held for another quarter despite the headlong rush towards an election. This bodes well for the future and will unlock more opportunities for developers as the feasibility of projects improve.
The UK economy maintained its steady growth in the first quarter of 2015 with consumer demand showing a moderate increase. According to the Bank of England’s latest reports, domestic manufacturing output slowed whilst manufacturing for export increased. Inflation for consumer goods continued to fall causing some concern for the Bank of England, whilst the housing market showed a return to moderate growth. In summary, the word that appears most often in the quarterly report is ‘moderate’, in other words ’steady as she goes’. This suggests interest rates will remain low and if and when they do increase the Bank of England is constantly pointing out the increase will be both small and slow.
The progress made in the South West property market in 2014 has continued into the first quarter of 2015 with no signs of the anticipated slow down as we approach the election. This could be due to a rush to get sales through before the election, so it will be interesting to see what happens in May, although our current thinking is that there will be little effect.
Industrial property has led the way in the South West with prime yields falling to circa 7.5% net initial. There are even odd examples demonstrating yields below 7%, a trend we are monitoring carefully. Multi-lets dipped below the 8%, as demonstrated by the sale of one or two blocks of trade counters. The industrial sector has however, been dominated by a lack of quality stock.
The industrial occupier market continues to show improvements as supply dries up which could force a number of occupiers to look at design build opportunities in 2015. Investors should keep their eyes and ears open for new build investments for sale, towards the end of 2015.
Offices are still looking undervalued, with a number of deals going through in the 8-9% net initial range, largely due to a lot of the stock still being over-rented. Do not expect this to last however, as rents rise once again due to the reduction in supply, as a number of buildings are converted to residential use. Quality of stock and environmental issues still remain key in this market.
Retail continues to defy the pundits with prime yields back down to 6% net initial. The gap between prime and secondary is however widening and there are some real opportunities to add value, if you know what you are doing, particularly with more requirement lists appearing from a range of new and established retailers. The Banks, despite their troubles, are still top of the picks with a lot being shifted through the auction houses during 2014.
The election could still have a big effect on the Property market in 2015 and depending on the result, you could see the market stall, certainly until late September, while investors try and work out what the impact will be, and stagnation is the last thing the market needs.