UK Commercial Property Returns Up

Investment returns for commercial property in the United Kingdom (UK) were on the rise in the third quarter, according to the latest report from Jones Lang LaSalle. Returned …

Investment returns for commercial property in the United Kingdom (UK) were on the rise in the third quarter, according to the latest report from Jones Lang LaSalle. Returned were up 1.3% for the quarter compared to 0.4% for the previous quarter, although analysts note that performance is not equal between primary and secondary markets. Specifically, prime commercial properties were responsible for the net growth in the quarter as secondary properties dropped 0.8% while primary properties surged 6.4% in the same period. The order of growth put retail property in first and industrial property last, with office space and warehousing falling in the middle. For more on this continue reading the following article from Property Wire.

Despite economic uncertainty in the Eurozone and the UK, the third quarter of 2012 saw some improvement with total property returns increasing to 1.3% compared with 0.4% in the previous quarter.

This was the largest quarterly increase since the fourth quarter of 2011 but annual returns for 2012 to date were still significantly below previous years at 3.8% compared with 8.4% at the same time in 2011.

However there is still a divide in performance between sectors and prime and secondary markets meaning careful stock selection will remain a priority for investors.

‘Increased investor focus on the underlying fundamentals is leading to a continued divergence in depth of bidding and pricing between prime and secondary investments,’ said Mike Penlington, director in Jones Lang LaSalle’s Valuation Advisory team.

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The report also shows a continued discrepancy in investment performance between prime (growth) and secondary (value) assets.

In the third quarter annual returns were 6.4% for growth and -0.8% for value properties, as the UK secondary market continues to see the sharpest capital declines.

It says that there is a clear divide between prime and secondary and while the prime sector should remain resilient, prospects remain highly polarised and other segments of the markets will continue to struggle.

Capital Value growth remained negative at – 2.9% on an annual basis as it continued to decline for the fourth consecutive quarter. However at-0.5% for the third quarter of 2012, it was less than the fall of 1.3% seen in the previous quarter. Income return offset decline in capital values.

On a sector level, retail recorded the strongest returns at 1.3%, with properties in prime locations and retail warehousing being the largest contributors to growth.  Offices recorded returns of 1.2% and Industrial 1%.

Equities remained resilient over the quarter recording a 4.7% increase. Indeed all asset classes showed growth with 1.0% for Gilts and 1.3% for Property.

All property rental growth remains limited at 0.4%.  Whilst retail saw some improvement it is the offices sector that continues to contribute most to this figure.

This article was republished with permission from Property Wire.


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