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The South West Specialists

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Property Investment Market Commentary - March 2014

After five years of reporting on the decline of the UK property investment market, we can at long last highlight increased activity with the first quarter of 2014 maintaining the progress made in 2013 holding out the prospect of increased values across most sectors in 2014. 

Not surprisingly the improvement coincides with the flood of good news in respect of the UK economy, with the Chancellor of the Exchequer, George Osborne, confirming that gross domestic product in the UK economy grew by nearly 2% in 2013 with UK manufacturing recording the strongest performance for 2½ years. Forecast for 2014 suggest further growth of circa 3% and continued low inflation and interest rates. 

According to the IPD UK Commercial Property Index total returns from property in 2013 were 8.9% with a prediction of double figure returns in 2014.

Increased activity is probably the best way to describe the market over the last twelve months which is becoming almost heated in some sectors as investors look to place their money before prices rise. And rise they will as increased competition, particularly for prime reclaims some of the losses of the past 5 years. Results in the first quarter reflect this as seen below.

Retail Office Industrial Residential
October 2007 5.0% 5.75% 6.25% 3.0%
October 2008 6.5% 7.8% 8.8% N/A
October 2009 5.75% 7.5% 7.75% 6.0%
October 2010 6.0% 7.25% 7.5% 6.0%
October 2011 6.5% 7.75% 8.0% 6.8%
October 2012 7.0% 8.0% 8.5% 7.0%
October 2013 7.0% 8.0% 8.0% 6.5%
March 2014 6.5% 7.5% 8.0% 6.0%

The appetite for single let industrial is increasing as opportunities to acquire multi let industrial estates reduce. A flurry of activity over the past 18 months saw values for multi lets rise and net initial yields fall from double figures to under 10% and even as low as 8.0% at the smaller end of the market. The popularity of the industrial market with investors is due to steady occupier demand which has held up throughout the recession and likely to show growth in rents in the not too distant future.

Offices on the contrary have been the worst performers but consequently look like real value for money as business sector recovers.  The most important factor with offices will be environmental issues (EPC ratings) and having efficient, well run and attractive buildings. Poor stock will be lost to the residential market in its many forms which will push rents up as supply dries up.

Retail has been another sorry tale and whilst it has been subject to the largest falls the sector looks like the one which will recover the quickest in the South West.  This is particularly true of the more attractive market towns where there is still strong demand from retailers. Smaller lot sizes with potential to add value through the upper floors will continue to be popular with the smaller investor. Detailed rental analysis is critical for buyers as a lot of properties remain substantially over rented.

For further information contact Mike Oldrieve - moldrieve@vickeryholman.com – 07747 842453.